Fed Likely To Hike By 50bps In December

I. The Fed Has More Work To Do

On October 26, we warned that the Fed could surprise markets with a 25bps rate hike at its October meeting. If the Fed chose to pass on doing so because the midterm elections were too close, we predicted a 50bps hike in December. Two days later, the FOMC voted 10-2 to hold the federal funds rate (FFR) at 3.75%-4.00%, with the two dissenters favoring a 25bps hike. Yet, in his October 28 presser, Fed Chair Kevin Warsh's assessment of the economy sounded decidedly hawkish. Economic growth was robust and broadening, the labor market was in good shape, inflation remained above the Fed's 2% target, and financial conditions were hardly tight.