December with dissent? - Rabobank

Analysts at Rabobank explained that if the economic data between now and mid-December continue to confirm that economic growth has picked up in H2, that the labor market continues to improve, and that inflation is on the rise – and there is no major threat to the US economy, we expect the Fed to hike on December 14.

Key Quotes:

"After all, the FOMC still likes to think that they are on a hiking cycle. So they will claim that they have seen sufficient evidence of continued progress towards their objectives and pull the trigger. In fact, today’s statement was more upbeat about inflation and inflation expectations than the September version. At the same time, the statement did acknowledge that household spending growth is not as strong as a few months ago."

"Chair Yellen still has some work to do before the next meeting though. After all, the September dot plot revealed that three participants did not expect to hike at all this year. Note that not all participants have voting rights and that strong economic data could persuade some dovish voters. Nevertheless, if Yellen fails to get all voting members on board by December, we may see a December hike with dissenters. This could undermine market confidence in the Fed’s decision, raise volatility, and might even have a perverse effect on yield levels at the longer end of the curve, as we showed in our earlier special Yield curve interactions."