(02 NOVEMBER 2017)DAILY MARKET BRIEF 2:No surprise from the Fed ahead of the Chair nomination

That was clearly not a surprise. Fed hold rates unchanged and has hinted for a December rate hike. The key rate stays at 1% to 1.25% of the FOMC. The likelihood of a rate hike for December has now been assessed by markets above 92%. The monetary policy will then remain then loose for some more time and stocks markets have already hit new highs yesterday.

Patience is definitely a key word for the Fed even though the unemployment data as well as the growth are very decent. Last quarter growth was 3% and unemployment rate is at 4.2%. Those good figures should have pushed the Fed to raise rates. Inflation is also on the rise with crude oil prices rising due to the recent hurricanes.

The fact that the Fed has a $4.5 trillion balance sheet will make it tough for the Fed to tighten monetary policy as it could trigger massive sell-off in the bond markets. Fed monetary policy is less and less about economic fundamentals but rather on the massive debt management.

By Yann Quelenn