FOMC: 25 bp increase in Fed funds rate widely expected - BBH

Research Team at BBH suggests that a 25 bp increase in Fed funds rate in today’s FOMC meeting is so widely expected that the failure to deliver it would be more destabilizing than a hike. 

Key Quotes

“The aspirational policy of the new US Administration is not the basis on which monetary policy can be formed.  It may disappoint some participants if the FOMC's economic projections are little changed from September.  Many hope that the outlook for fiscal policy will be clearer by the March meeting when the forecasts are updated, but that may be too optimistic.  The new Administration does not take office until late January, and it seems to have indicated that trade will be its first economic focus, not stimulus, which will have to be carefully negotiated with Congress.”

“The market will likely take its cues from the dot plot rather than the statement.  The press conference will also be important because it is there that Yellen will be pressed about how the Fed thinks about fiscal policy.  It will also likely be the forum in which the steepening of the yield curve will be discussed.  There are some who argue that the steepening of the term structure means that the Fed may be slipping behind the curve of inflation expectations.  We expect Yellen to deftly deflect concerns about the Fed's independence.  Given the length of terms and other considerations, it is possible that the next president can nominate a majority of the Board of Governors over the next 18-24 months.”