The FOMC statement was almost identical to the one in September. They said “economic activity has been rising at a solid rate despite hurricane related disruptions” after saying in September that “economic activity has been rising moderately so far this year.” On inflation they referred to non energy inflation as remaining “soft.” If they look at PCE which they do, the core rate is 1.3% and if they look at CPI it’s at 1.7%. “Soft” therefore is in the eye of the beholder. Either way, the market latched on to the “soft” comment but I think there is little question the Fed is hiking again in December as it would only take the Fed Funds rate to just 1.5%. Whether they should or not, the Phillips curve is also something many at the FOMC believe in and expect more hikes in 2018 ALL ELSE EQUAL because of the clear growing evidence of rising wages. While they mentioned the rise in gasoline prices post Harvey, they didn’t acknowledge the CRB index as a whole which is near a 7 month high.
US Treasuries did little in response but take note that the 2s/10s spread is back to 75 bps, a 10 year low and down almost 7 bps on the week notwithstanding all the excitement over US growth. What’s that saying? Partly worries about US growth as we enter 2018 and monetary tightening gets deeper and also reflects last week’s dovishness from the ECB which resulted in a rally in European sovereign bonds.