UNITED STATES — There was little doubt about the outcome of the Sept. 20 meeting — a change in reinvestment policy and pause in rate hikes had been well-signaled by policymakers. So instead the focus was on the Fed’s thoughts on inflation and any implications for the pace of tightening outlined in the “dot plot.”
In the event, Fed Chair Janet Yellen’s comments largely stuck to the script: inflation has been held down by some transitory factors and should return to the Fed’s 2 percent objective as those factors dissipate and tighter economic and labor market conditions put upward pressure on prices.
That view was backed up by a little-changed set of “dot plot” projections showing another rate hike is likely by the end of this year with three more rate hikes seen next year. Confirmation that gradual tightening is likely to continue despite slowing spot inflation prompted a modest USD rally and slight selloff in treasuries.
Upcoming economic reports are likely to be impacted by severe weather—there was already evidence of that in the latest data for August, reported the RBC. While those effects should prove transitory, they will make it a bit trickier to get a read on the economy’s underlying growth trend.
“The Fed is well aware of this, so we don’t see a couple of disappointing reports knocking them off their plan to continue on a path of gradual rate hikes,” reported Josh Nye, RBC economist. “That path remains data dependent, however, and further downside surprises on inflation in particular might lead to a more cautious removal of accommodation. In that sense it was encouraging to see some signs of stabilization in recent CPI data. We continue to expect one more rate hike in December and further moves next year.”
Source: RBC press release