There were few surprises in the Fed’s statement, with rates left unchanged including the IOER, where some minor speculation of a technical trimming had circulated. The main adjustment to the statement was to note a moderation in business investment, something that the Q3 GDP breakdown made necessary. However, it was worded in such as a way as to avoid conveying any impression of weakness (a moderation from a rapid pace). A minor hawkish adjustment was also seen, noting that unemployment declined rather than stayed low.
Looking at the statement, there is little reason to doubt that the Fed will implement another rate hike at its December meeting, even if by then it should be looking clearer that Q4 GDP will not match the strength of Q2 and Q3. This will be also seen as a moderation from a strong pace, and as long as unemployment remains under downward pressure, growth will be strong enough to justify continued tightening.
The Fed did not give a nod to recent inflationary numbers having come in a little softer, simply noting that the core rate remains near 2% and inflation expectations are little changed (both unchanged from what the Fed saw in September). Whether inflation accelerates or even slows modestly is more uncertain than a modest slowing in GDP growth, although we would lean toward a marginal acceleration, as that is what wages are suggesting.
We continue to expect three rate hikes in 2019, occurring in the first three quarters of the year.