The statement following the Federal Reserve’s monetary policy setting committee, the Federal Open Market Committee (FOMC), October meeting surprised few by not announcing an interest rate increase. Few analysts expected a move at this meeting. However, a significant development came in the form of the language referring to the timing of the first rate increase. “In determining how long to maintain this target range …” was replaced with “In determining whether it will be appropriate to raise the target range at its next meeting …” The committee has been saying that the first increase is possible at any meeting for some time now. This time they mean it.
That said, what will they see in assessing progress toward their objectives of maximum employment and 2% inflation between now and the December meeting? Employment reports for October and November will show whether payroll employment rebounds from unexpected softness in August and September. Any declines in the unemployment rate in those reports will be discounted by the depressed labor force participation rate and still elevated levels of part-time and marginally attached workers.
October and November will also provide the advance and second estimates of third quarter GDP growth, which is expected to be well below the 3.9% second quarter pace. And readings of core inflation and inflation expectations are likely to be still meaningfully below the Fed’s 2% target. Add to this a growing number of voices calling for no increase this year and favorable conditions for an increase at the next meeting may be less likely than they were at the last meeting.
The “next meeting” may not mean the December meeting but it suggests that any meeting is possible now.