The market flirted with pricing in an October rate hike for weeks but with little guidance from Chairman Kevin Warsh, the market ultimately tilted towards pricing in no move, with just a 7% chance at the time of the decision.
- Vote was 10-2
- Cook and Hammack dissented in favor of a hike
- Economic activity expanding at a ‘strong’ pace vs ‘solid’ previously
- Inflation remains elevated (repeat from previous statement)
- Job gains have kept pace with workforce, unemployment little changed (repeat from previous statement)
- Domestic spending has been resilient (repeat from prior statement)
- Productivity growth is strong, capital investment is robust (repeat from prior statement)
So the ‘strong’ comment highlights some optimism on the economy and that’s a hawkish signal if there’s anything in this report.
Ahead of the decision and minutes afterwards, here is how markets looked:
- S&P 500 up 14 points (up 15 points)
- US 2-year yields up 2.7 bps to 4.75% (4.78%)
- WTI crude oil up $2.94 to $102.82 (102.61)
- USD/JPY up 30 pips to 158.23 (158.22)
Notable was back in the July decision when it was a 9-3 vote to hold rates with Hammack, Kashkari and Logan all voting to hike. This time Hammack voted to hike again but Kashkari and Logan didn’t. Meanwhile, Cook shifted towards the hawkish side.
The September rate hike was the first one of the cycle and the market is pricing in about 79 bps of hikes in the year ahead.
