The U.S. FOMC is set to meet tomorrow for its monetary policy decision. According to a DNB Markets research report, the FOMC is likely to keep the Fed funds rate on hold and continue to hint at stable rates.
The U.S. macro environment continued to ease this autumn. However, the deceleration in the economy is still modest and the labor market continues to be solid for some time. Therefore, the description of the economic development in the statement might probably be little changed this time. Moreover, the FOMC might keep the new guidance that it adopted at the October meeting.
“We also assume that the new dot-chart will indicate a stable Fed funds rate next year, even though the median dot will likely indicate a small rate increase in 2021 and 2022. However, it seems Based on the above, we believe that the FOMC will continue to indicate unchanged rates in the short term”, said DNB Markets.
At present, the present guidance is expected to be maintained, but the FOMC might stress that policy is data-dependent and not on a pre-set course. Accordingly, continued softness cannot be ignored, and there is a risk of a more dovish policy turn in 2020. The apparent softness of the economy and the risk of lower inflation might spur another rate cut early next year.
“In particular, we believe that the apparent weakness of the economy and the risk of lower inflation could spur another rate cut early next year. At the press conference, issues related to the ongoing review of the policy framework may be raised. In particular, possible changes to the inflation target are likely to be touched upon. However, no final decision on formal changes to the framework is expected to be made until well into next year”, added DNB Markets
