Fed watch: no change in Nov - Nomura

Analysts at Nomura explained that they expect the FOMC to leave the federal funds rate target range unchanged at 0.25- 0.50% at the conclusion of the 1-2 November FOMC policy meeting

Key Quotes:

"The case and rhetoric for a rate increase this year continues to grow, but given that the election (which will be held the week after the November meeting) has the potential to move markets and the economic outlook, we think the FOMC will wait until the December meeting to raise rates.

We expect the FOMC to reveal little new information after the meeting, as there will be no press conference or update to participants’ economic outlooks (their “dots”). Instead, there will only be a statement, and we expect that statement to be little changed from September’s. The “economic assessment” section (i.e., the first paragraph) will likely acknowledge that the economy continues to strengthen and that activity has picked up (GDP grew by 2.9% in Q3 vs 1.4% in Q2). Reflecting the details of the GDP numbers, the language for household spending may change from “growing strongly” to “continues to grow.” Also, the statement may nod towards stating that net exports have improved.

We see little compelling reason that would force the Fed’s hand to edit its statements on risks: the risk assessment on the outlook doesn’t appear to have changed all that much
since the last meeting, which it deemed to be “roughly balanced.” We believe there is a small probability that the Committee could explicitly signal a rate increase for the next meeting like it did last October before raising rates in December 2015. However, we think that it’s unlikely. Given that markets are already pricing in a rate increase for

December, we think that the Committee will forgo sending an explicit signal, because the FOMC may not want to set a precedent of constantly telling market participants that it’s
likely to raise rates before it does so. Last, the three dissenting voting members (Mester, George, and Rosengren) from the September meeting will again likely vote against the action if the Committee decides to leave rates unchanged. Beyond the November meeting, we continue to believe that the FOMC is on track to raise rates in December. According to the minutes from the September meeting, several of the participants who favored leaving rates unchanged felt that it was a “close call.”

Since then, most fed officials (dovish members included) have said, to varying degree, that they would feel comfortable raising rates this year. The bottom line is that there is likely consensus building towards a hike in December. This consensus is driven in part by the performance of the economy. The economy appears to be on track to hit the FOMC participants’ median forecast for growth (1.8% Q4/Q4) and inflation (1.7% y-o-y)."