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Fed holds rates steady; 'solid' growth keeps December hike in view

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11/01/2017 | 07:32pm CET

The Federal Reserve kept interest rates unchanged on Wednesday and pointed to solid U.S. economic growth and a strengthening labor market while downplaying the impact of recent hurricanes, a sign it is on track to lift borrowing costs again in December.

COMMENTS:

JOSEPH LAVORGNA, CHIEF ECONOMIST, AMERICAS, NATIXIS CIB AMERICAS, NEW YORK

“There are two things of note, and then a third. The most important, it’s ham on rye. There’s nothing interesting here. Steady as she goes. The second point is there’s nothing that pre-commits them to moving in December. There’s no language to suggest that they’re moving, however, expect them to move in December.

“They’ve laid that out in various discourses up to this point. It would be hard to think they’re not going in December unless something extraordinary out of the blue was to happen they’re going in December, although they didn’t say it in the statement.

“The third piece was that they don’t expect, and rightly so, there’s going to be any lasting effect from the hurricane, which makes sense, that’s economically true.”

ERIC STEIN, CO-DIRECTOR OF GLOBAL INCOME GROUP, EATON VANCE MANAGEMENT, BOSTON

“They upgraded growth a bit but they watered down the language on inflation. All in all, it’s a wash. We are very much on track for a December rate hike. There is very little ... market reaction. People are waiting for the possible announcement of Powell as the next Fed chairman tomorrow.”

RANDY FREDERICK, VICE PRESIDENT OF TRADING AND DERIVATIVES FOR CHARLES SCHWAB IN AUSTIN

"I don’t think there is anything real surprising out of this.

"The comments on the economy were pretty good, talking about solid growth, strong labor market despite the hurricanes. I think those are all good things.

"I would say it pretty close to seals a December rate hike. I think that was the consensus for the last couple of months already. I would say it’s pretty much a done deal."

JOHN AUGUSTINE, CHIEF INVESTMENT OFFICER AT HUNTINGTON NATIONAL BANK IN COLUMBUS, OHIO

"The Fed didn't seem to change course on lifting rates in December and continuing to whittle down their balance sheet. Markets, especially stocks, seem to be initially rebounding post-statement because the Fed didn't change course. There was nothing new for markets to digest,"

"We've a situation right now where earnings are good and the economy is picking up pace so how was the Fed going to react? We didn't know whether the Fed would get more hawkish. Their statement remains fairly dovish and measured."

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST AT STATE STREET GLOBAL ADVISORS IN BOSTON

“It’s kind of as expected. The pending announcement regarding the new chair seems to be overshadowing most everything. The Fed, as expected held rates steady, there was a less than 1 percent chance in terms of fed funds futures, that they were going to do anything. They continued to signal they are committed to raise rates in December and they expect inflation to rebound given that the labor market is so tight. So straight down the middle on this particular announcement."

STAN SHIPLEY, STRATEGIST, EVERCORE ISI, NEW YORK

"They’re setting the market up that they’re going to tighten in December and I think they’re telling the market clearly that there’s going to be several increases – more than 2 – in 2018. The risk is inflation. It continues to baffle them on why it is where it is and the performance. For a long time it was never clear whether it was the headline or the core (inflation reading). Now it’s clear that it’s the core."

GREGORY DACO, CHIEF U.S. ECONOMIST, OXFORD ECONOMICS, NEW YORK

“It’s in line with our expectations. It’s business as usual even with the hurricane disruptions. It confirms a December move. If we get a confirmation that Trump picks Powell tomorrow, it’s a sign that monetary policy will continue on its current course that we have seen so far this year, with gradual normalization. We would see a few rate hikes in 2018 depending on any fiscal stimulus we might get.”

MARKET REACTION:

STOCKS: Stocks were little changed, with the S&P 500 adding slightly to gains.

BONDS: U.S. Treasury yields were little changed

FOREX: The U.S. dollar pared gains, then rose slightly, with the dollar index last up 0.2 percent.

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