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The Federal Reserve Open Market Committee is set to release its press statement on December 19. I expect the FOMC to increase policy rates by 25 basis points. The new range for the federal funds rate would be 2.25% to 2.50%.
I will be watching for indications that the Fed is prepared to skip a quarter (or more) in the current cycle of tightening. However, I don't believe that December will be the last rate hike of this cycle. Here is an overview of a few other key developments I’m expecting:
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The end of FOMC consensus
This may be the last FOMC meeting in which there are no dissents. Up until now, both the "hawks" and "doves" could mostly agree that the policy rate was too far below neutral for an economy with a rising inflation rate (close to target) and a falling unemployment rate. With this rate hike, I believe the hawks and doves will start to go their separate ways on further rate hikes; they differ on what they think "neutral" is.
Forward guidance may disappear
The FOMC may change its policy statement in an important way. The FOMC has been giving forward guidance, referencing further gradual increases in the target range for the federal funds rate. I think this guidance will likely be scrapped after this week’s meeting. Instead, Chairman Powell will likely reference “data dependence,” which means the Fed would come off autopilot and take a more cautious approach toward rate hikes. I expect Chairman Powell to clarify what he means by data dependence at Wednesday’s press conference.
Trimmed economic projections
The FOMC will update its Survey of Economic Projections. It's likely to note the good current economic data, but it’s also likely that the committee will trim projected GDP growth for 2019 or 2020. The committee may also trim projected inflation for 2019 because of lower oil prices.
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