FOMC Statement: December Rate Hike Still on the Table?

The Fed has spoken! Did the U.S. central bank change its mind about hiking rates before the end of the year? And where will the U.S. dollar go from here? Hey, that rhymes!

As I’ve laid out in my FOMC preview article, one likely scenario was that policymakers would refrain from announcing any rate changes for now while keeping a 2015 liftoff on the table. While Fed head Janet Yellen didn’t explicitly say that they’ll be tightening monetary policy in their next and last rate statement in December, she also didn’t dismiss this possibility entirely.

In other words, FOMC policymakers can neither confirm nor deny that a December interest rate hike is happening.

USD Index 15-min Chart

USD Index 15-min Chart

Based on the U.S. dollar’s reaction, this is still something that most forex market watchers interpreted as a relatively hawkish statement, probably due to the following changes:

  • The Fed said that business and household spending is solid from their earlier assessment that it is just moderate.
  • Even with the recent downturn in hiring, the FOMC maintained that “labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year.”
  • The Fed is just “monitoring global economic and financial developments” for now, unlike their September statement which said that concerns “may restrain economic activity somewhat.”

And here’s the kicker: Fed officials hinted that a bit more progress in terms of employment and inflation might be all that’s needed to give the green light for a rate hike in December. “In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation,” the official statement showed.

For some analysts, this implies that a December interest rate hike is the default scenario, unless of course the next batch of U.S. economic data disappoints. Keep in mind that Uncle Sam has a couple of NFP reports on the docket, along with two more sets of inflation releases (CPI and core PCE price index), before the December 16 FOMC meeting. Mark your calendars, people!

  • Oct 30: Sept core PCE price index
  • Nov 6: Sept non-farm payrolls report
  • Nov 17: Oct headline and core CPI
  • Nov 25: Oct core PCE price index
  • Dec 4: Nov non-farm payrolls report
  • Dec 15: Nov headline and core CPI

Aside from these, upcoming GDP releases and the minutes of this particular monetary policy meeting (due Nov 18) could also be crucial for the Greenback’s forex trends. Downbeat data could dash hopes of a December liftoff but if the reports meet or beat expectations, dollar bulls might keep charging until the end of the year!

What’s your take on the latest FOMC statement? Are you looking forward to a December rate hike?