FOMC Preview

September 26, 2018

Markets have already priced in the Fed’s eighth increase of the federal funds target to a range of 2.0-2.25%. The increment of each hike has been 25 basis points, so today’s likely move will complete two full percentage points of tightening and be probably enough to warrant deletion in today’s FOMC statement of a characterization of policy as still accommodative. The previous rate hikes were made in December 2015, then December 2016 and March, June and December of last year, and finally March and June of 2018. The August statement and last batch of released forecasts and press conference encouraged markets to anticipate two more tightenings this year.

Data over the eight weeks since the last FOMC meeting at the start of August also support the likelihood of a rate hike today and signals that a fourth move for the year at the December meeting. U.S. GDP grew at a 3.2% annualized rate in the first half of 2018 and surpassed 4.0% in the spring. Unemployment was at 3.9% in both July and August, and new jobless insurance claims averaging only 205-3/4 thousand in the latest four months underscores just how tight the labor market has become. Core CPI inflation lies above 2.0%, and oil prices are again above $70/barrel. The imposition of import tariffs on a wide array of Chinese goods is likely to lift inflation at least in the short term.

The scheduled macroeconomic forecasts to be released today are apt to acknowledge faster growth and higher inflation. Rhetoric from individual FOMC members during the summer also suggests that the dot-plot of the preferred federal funds path of climb may drift higher too, or at the least indicate greater convergence of individual views on the committee. Note that for the first time, forecasts will be extended to include the year 2021.

The table below shows U.S. vital market signs at the release time of previous FOMC statements since mid-2004.

EUR/$ $/JPY 10Y, % DJIA Oil, $
06/30/04 1.2173 109.44 4.63 10396 37.95
06/30/05 1.2090 110.89 3.96 10370 57.00
06/29/06 1.2527 116.07 5.20 11077 73.41
06/28/07 1.3452 123.17 5.10 13456 69.82
08/07/07 1.3749 118.55 4.73 13510 72.27
09/18/07 1.3888 115.75 4.51 13475 81.42
10/31/07 1.4458 115.28 4.42 13873 93.59
12/11/07 1.4682 111.49 4.11 13645 89.78
01/30/08 1.4792 107.31 3.70 12454 91.70
03/18/08 1.5786 98.73 3.41 12257 107.53
04/30/08 1.5562 104.58 3.83 12953 111.54
06/25/08 1.5568 108.37 4.18 11837 133.62
08/05/08 1.5445 108.42 3.97 11484 119.82
09/16/08 1.4144 105.16 3.36 10936 91.18
10/08/08 1.3625 99.87 3.50 9447 87.02
10/29/08 1.2933 97.15 3.81 9145 67.38
12/16/08 1.3790 90.14 2.52 8687 44.14
01/28/09 1.3253 90.01 2.61 8356 42.92
03/18/09 1.3115 98.13 2.94 7340 47.73
04/29/09 1.3331 97.06 3.02 8194 51.05
06/24/09 1.3984 95.43 3.59 8373 68.76
08/12/09 1.4221 96.17 3.71 9366 70.64
09/23/09 1.4779 91.50 3.50 9859 69.13
11/04/09 1.4884 90.75 3.51 9896 80.66
12/16/09 1.4542 89.78 3.56 10478 73.14
01/27/10 1.4045 89.49 3.61 10148 73.31
03/16/10 1.3756 90.64 3.67 10645 81.45
04/28/10 1.3157 94.10 3.75 11043 82.57
06/23/10 1.2284 90.12 3.13 10307 76.50
08/10/10 1.3107 85.85 2.81 10605 79.94
09/21/10 1.3132 85.21 2.66 10747 73.05
11/03/10 1.4059 81.35 2.53 11174 84.59
12/14/10 1.3423 83.37 3.38 11497 88.47
01/26/11 1.3658 82.55 3.41 12001 87.36
03/15/11 1.3969 81.04 3.29 11815 98.09
04/27/11 1.4665 82.63 3.36 12612 112.48
06/22/11 1.4392 80.12 2.97 12175 94.87
08/09/11 1.4234 77.09 2.36 10993 81.76
09/21/11 1.3778 76.34 1.93 11377 86.74
11/02/11 1.3724 78.11 2.03 11805 92.77
12/13/11 1.3067 77.92 1.98 12130 100.20
01/25/12 1.3027 77.96 1.97 12670 98.85
03/13/12 1.3096 82.76 2.08 13044 106.34
04/25/12 1.3226 81.37 1.97 13096 104.13
06/20/12 1.2693 79.28 1.66 12837 83.63
08/01/12 1.2300 78.10 1.49 13028 88.98
09/13/12 1.2895 77.43 1.72 13342 97.60
10/24/12 1.2948 79.75 1.77 13115 85.72
12/12/12 1.3082 83.24 1.70 13325 87.13
01/30/13 1.3584 91.16 2.02 13949 97.63
03/20/13 1.2948 95.65 1.94 14497 92.82
05/01/13 1.3195 97.48 1.62 14740 90.47
06/19/13 1.3364 95.76 2.23 15304 98.38
07/31/13 1.3301 97.92 2.67 15565 105.63
09/18/13 1.3363 98.28 2.76 15606 107.01
10/30/13 1.3764 98.18 2.48 15660 97.42
12/18/13 1.3696 103.81 2.89 16198 98.06
01/29/14 1.3651 102.13 2.73 15719 97.23
03/19/14 1.3918 101.75 2.71 16335 99.96
04/30/14 1.3868 102.11 2.66 16553 99.52
06/18/14 1.3584 101.93 2.61 16892 106.12
07/30/14 1.3372 102.84 2.51 16878 101.45
08/17/14 1.2961 107.60 2.57 17151 94.05
10/29/14 1.2677 108.40 2.33 16956 82.51
12/17/14 1.2409 117.58 2.11 17201 57.85
01/28/15 1.1337 117.77 1.78 17457 44.75
03/18/15 1.0637 120.98 2.05 17733 42.49
04/29/15 1.1164 118.67 2.05 18039 59.16
06/17/15 1.1255 124.22 2.39 17862 59.12
07/29/15 1.1073 123.61 2.29 17720 49.17
09/17/15

10/28/15

 1.1334

1.1081

 120.86

120.50

 2.26

2.07

 16778

17687

 47.01

45.83
12/16/15

01/27/16

03/16/16

04/27/16

06/14/16

07/27/16

09/21/16

11/02/16

12/14/16

02/01/17

03/15/17

05/03/17

06/14/17

07/25/17

09/20/17

11/01/17

12/13/17

01/31/18

03/21/18

05/02/18

06/13/18

08/01/18

09/26/18

 1.0956

1.0874

1.1089

1.1339

1.1205

1.0998

1.1160

1.1099

1.0641

1.0741

1.0638

1.0910

1.1149

1.1735

1.2010

1.1631

1.1815

1.2424

1.2271

1.1963

1.1788

1.1668

1.1733

 

 

 

 121.72

118.48

113.70

111.37

106.15

105.65

100.84

103.33

115.37

113.52

114.48

112.47

111.55

111.17

111.34

113.91

112.58

109.31

106.27

109.91

110.38

111.69

112.98

 2.29

2.02

1.99

1.89

1.62

1.53

1.70

1.78

2.45

2.49

2.57

2.30

2.13

2.29

2.24

2.35

2.34

2.73

2.89

2.97

2.96

2.99

3.08

 17583

16002

17217

18013

17675

18461

18151

17989

19915

19890

20885

20920

21375

21711

22376

23405

24585

26259

24839

24095

25309

25310

26533

 35.95

30.85

37.79

44.89

48.29

41.91

43.44

45.18

51.83

53.33

48.43

47.96

44.71

48.75

50.55

54.24

56.60

64.41

65.00

67.57

66.77

67.62

71.90

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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