Next on the docket
Today the Federal Reserve will publish the outcome of its two-day Federal Open Market Committee meeting. Moving into this decision and prior to the mandatory blackout period, employment and price data remained largely consistent with a ‘no landing’ scenario. The market had been keeping a close eye on employment data, wary of not only the Fed’s dual mandate but also the propensity for weakness in this market to undermine the Fed’s ability to hold rates in restrictive territory. Despite a general increase of initial and ongoing jobless claims, the absolute level remains commensurate with a moderate path of interest rate adjustment.
Released on 1st November, the most recent non-farm payroll told a different story. Falling more than 100k payrolls short of the consensus expectation, prior to a sea change driven by the confirmation of President Trump elect, we had observed selling pressure within USD. Moving into today’s interest rate announcement, the market is pricing a 25-basis point interest rate cut from the Fed. In the context of the Fed’s September outsized interest rate adjustment of 50 basis-points, it is clear that the market feels economic conditions in the USA moving into this meeting are more robust versus those incumbent during its last meeting.
The US election this week has almost certainly had an impact on the Fed’s logic for the November decision. Overall, the influence of the election in the run up to and during this meeting period will create a persuasion towards cautious versus aggressive monetary action. General risk conditions, in particular the appetite and price of debt in the US, will also determine how the Fed can approach the easing process from here. Whilst risk conditions faltered last week with GBP selling off in the sessions following the UK budget, dollar liquidity so far has remained plentiful.
Discussion and Analysis by Charles Porter
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