- Roberto Perli, an analyst at Cornerstone Macro
As widely expected the Fed maintained its key interest rates unchanged at its October meeting. But what is more important is the fact the US central bank explicitly stated that it might hike short-term interest rates in December, downplaying recent global financial market turbulence and saying the US labour market was strengthening despite a slower pace of job growth. Individual central bankers have signalled before that they expected to start normalizing monetary policy before year-end. The Fed's FOMC had not previously stated so explicitly in a communique the potential timing of a rate hike. Investors were quick to change their mind, with futures contracts suggesting a 43% possibility of an interest rate hike in December compared to 34% prior to the Fed's statement. Fed officials noted that household spending, which makes up 70% of economic activity, and business fixed investment rose at a solid pace in recent months, coupled with a further strengthening in the housing sector, whereas net exports have been soft
Now that the Fed has put a December rate hike firmly on agenda, the question is whether the US economy will play along. Third-quarter GDP and jobless claims data are due today, with economic growth being expected to slow significantly.
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