Market CommentariesThe Federal Reserve Stays The Course In November 2017

The U.S. Federal Reserve, which has been long on transparency and, accordingly, short on monetary surprises in recent years, lived up to its reputation this afternoon, as it voted to keep interest rates unchanged. Expectations for no rate change had been almost universal going into the meeting yesterday.

As before, the bank indicated that the late-summer hurricanes were unlikely to have much of a long-term effect on the economy.  In fact, after GDP had gained a reassuring 3.1% in the second quarter, expectations had been for some deceleration in the recently ended period. However, in data issued last Friday, the government indicated that growth had stabilized at an even 3.0% in the third quarter. We now believe output will edge up somewhat in the current term, perhaps approaching 3.5% in the wake of some solid economic numbers in recent days.

So, with this perhaps in mind, we would expect the central bank to hike borrowing costs at next month's FOMC meeting. We assume that this Friday's report on job growth, meantime, will be encouraging (with some 300,000 positions added) to strengthen the case for a rate hike next month.

As is usually the case, the Fed did not overly tip its hand about December. However, with its positive tone on the economy--it noted that the labor market was continuing to strengthen--one would assume that it would move ever close to a normalized rate structure by tightening monetary policy next month.

In all, the central bank already has raised interest rates twice this year as part of its gradual approach to the aforementioned more normalized policy. We note that even if the Fed raises rates at the mid-December meeting, its policy would still be loose and accommodative from a historical perspective.

Regarding the stock market, prices were mixed ahead of the meeting's conclusion, but firmed somewhat in the minutes immediately afterward.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.