While the odds of an Australian rate cut firmed after the release of the September quarter CPI figures, in the US the odds are in favour of a move in their official rate in the opposite direction. The Federal Reserve’s Federal Open Market Committee finished its two day October meeting and left the federal funds target rate unchanged at a range of 0% to 0.25%. The US cash markets had been pricing a 30% chance of an increase by the end of the year ahead of the decision but shortly after the decision the implied probability was closer to 50%. US 2 year Treasury notes yields rose quickly on the release of the statement and finished at 0.70%, up 7bps on the day.
The committee downplayed the threat to the US economy from the global developments which were a feature of its September statement, a change which Westpac described as giving the statement a “more hawkish twist.” However, the real surprise was the modification to the reference as to how long to maintain its target rate. The latest statement made a direct reference to the next meeting in December with the reference “whether it will be appropriate to raise the target range at its next meeting.” Westpac noted this change and said, “This is by no means a promise of action but was much firmer than markets expected.” ANZ also used the term “hawkish” but said, ”To be fair, a hike in December is far from certain” and pointed out the upcoming data such as US payrolls “will be key”.
For the full statement, click here. 