Economic Outlook by Alan Blinder
Alan S. Blinder
Vice Chairman and Co-Founder, Promontory Interfinancial Network
Professor of Economics and Public Affairs, Princeton University
What a nice coincidence. Game 7 of the World Series and a meeting of the Federal Open Market Committee (FOMC) came on the same day! The baseball game was exciting beyond belief. But the FOMC meeting was a yawner——as virtually everyone thought it would be. Did anyone really believe a divided Fed would raise interest rates just six days before the election? (Answer: No.)
To find anything of interest in the statement (other than that Boston’s Eric Rosengren, a nonideological realist, sensibly tabled his dissent), you have to dig pretty deep into the weeds. There you will find two sentences that got market participants to mark up their probabilities of a December rate hike:
- The FOMC statement changed the key phrase “the case for an increase in the federal funds rate has strengthened” to “the case for an increase in the federal funds rate has continued to strengthen.” Only at the Fed could such a change be noteworthy.
- The new statement observed that “inflation has increased somewhat since earlier this year.” Totally factual. But it was the first time in years the Committee had mentioned increasing inflation.
Yes, both of these small changes should be read as somewhat hawkish—as they were. But, barring something truly weird happening between now and then, the likelihood of a 25 basis point rate hike on December 14th was pretty high anyway. As I said, the World Series cliffhanger was more exciting.