The Federal Open Market Committee (FOMC) met this last week and left rates unchanged. FOMC in-action was much expected, however they did set the table for a December rate hike.
A rate hike in November was very unlikely. With the US election days away from the FOMC meeting, they did not want to cause additional stress on the economy. They had good reason. Over the last week the race, both for the White house and the Senate have become much closer. This close race has caused much of a stagnation effect on markets. This was a week that should have caused markets to strengthen if you were to set aside the election.
US Data
Economic data firmed, giving a good indication of strength heading into the 4th quarter. Core PCE, the FOMC’s preferred measure for inflation came in at 1.7% year over year (YoY), below the 2% FOMC goal. Personal spending expanded at 0.5%, a good sign of 4th quarter spending ramping up. Manufacturing PMI has improved to 53.4 (over 50 indicates expansion). Productivity jumped to 3.1%, the unemployment rate fell to 4.9%, and average hourly earnings increased by 2.7% YoY[1]. A strong increase in wages signals potential inflation in our future. Headline inflation has remained subdued as we move into a low demand period for fuel. It may take a while for inflation to grab hold again.
With GDP firming over the 3rd quarter and economic data looking strong as we lead into the 4th quarter, an FOMC rate hike is becoming very likely in December.
Conclusion
While the FOMC in-action during this meeting was predictable they are setting up for a rate increase in December. While it may not seem like more of the same, they are following the exact same course taken in 2015… We all know how that turned out at the beginning of 2016…
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[1] www.investing.com – economic calendar