Fed: Clear signs of a possible smaller hike in December are still unlikely – BBVA

On Wednesday, the Federal Reserve will announce its decision on monetary policy. A 75 basis points rate hike is priced in. According to the Research Department at BBVA, all eyes on hints of a potential downshift in tightening pace.

Key Quotes: 

“Given that a super-sized hike is a done deal, the focus will be on hints on what will drive a slowdown in the pace of hikes. We think that Chair Powell will not be able to provide clear guidance about the most likely size of the December hike, not only because it will depend on upcoming data -two more monthly job market data and two more inflation readings-, but also considering that a wide consensus within the FOMC on the next steps seems still unlikely at this moment in which some Fed officials have just begun to coincide on the importance of assessing the effects of “cumulative tightening” on the economy and inflation.”

“We think that a shift to a slower pace of hikes and then the decision to end the tightening cycle will depend (more) on labor market data. With inflation set to remain quite high in the short term, and underlying inflation pointing to stickiness ahead, what will drive the Fed to slow the hiking cycle will be signals that the labor market is on a pace of rebalancing. Thus, the most important signal in Chair Powell’s remarks will be hints on what the Fed is looking for in the labor market to slow down the pace of tightening and then to stop.”