The markets are convinced that the Fed will stand pat at this week’s FOMC meeting, which concludes on Wednesday, and will instead raise interest rates at the final policy meeting of the year in mid-December. We broadly agree with that view, but wouldn’t completely rule out the possibility of a surprise November rate hike. With Hillary Clinton now so far ahead in the polls and financial markets still taking the election in their stride, Fed officials might feel confident enough to hike now. That would help to demonstrate their political independence and also that every FOMC meeting is “live”. Furthermore, although it would come as a surprise to the markets, that surprise would be restricted to the timing of the move rather than the policy tightening itself.
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