FOMC will keep guidance unchanged

Genevieve Signoret

Macro Views

Next week: the highlights

Two events especially will command market attention this week:

1. The Federal Open Market Committee (FOMC) monetary policy decision and Janet Yellen press conference. The market will be focused on whether the Fed will keep, remove, or modify its forward guidance, which today reads  as follows: The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time. While it’s true that labor market data has beat expectations recently, we expect the Fed to keep its forward guidance unchanged. PCE core inflation at 1.55% remains well below the Fed’s target. Also, energy prices are plummeting, putting inflation expectations at risk. But most important, market volatility has shot up. We think the Committee will be loath to risk intensifying this episode.
2. Global PMIs. Global manufacturing has been weak. Any sign of improvement—especially from China—could help build a floor under oil prices and commodity currencies.

For all the details, please scroll down.

Next week: the details

Events in red are those most likely to shake markets.

Monday 15

• Turkey: Unemployment rate (Sep).
• USA: Industrial production (Nov), capacity utilization (Nov). Consensus: 0.7% m/m (from -0.1% in Oct). Industrial output in the USA has outperformed that of other countries not because of manufacturing but rather because of oil and gas drilling. We’re concerned that this drilling will dry up (so to speak) and cause output numbers, fixed investment, and overall GDP, to sharply weaken, before a burst of consumption moves GDP the other way.
• Mexico: Employment: IMSS affiliates (Nov).

Tuesday 16

• Global: Markit manufacturing PMIs (Dec, flash). See our detailed comments above.
• Euro Area: Foreign trade (Oct).
• UK: Consumer prices (Nov).

Wednesday 17

• Japan: Foreign trade (Nov).
• Euro Area: Consumer prices (Nov). Consensus: no change at 0.3% y/y.
• UK: Unemployment rate (Oct), monetary policy meeting minutes (Dec 4). The Monetary Policy Committee left its monetary policy rate unchanged at 0.50% and its asset purchase program intact at £375 billion. The November minutes revealed that two dissenters were ready to begin lifting rates.
• USA: Consumer prices (Nov), monetary policy meeting and Janet Yellen press conference. Consensus and TransEconomics: rate unchanged at 0.0%–0.25%. See our detailed comments above.
• Mexico: Banamex survey (H1 Dec).

Thursday 18

• USA: Unemployment claims (Dec 13).
• Mexico: Retail sales (Oct).

Friday 19

• Japan: Monetary policy meeting.  In October, the BoJ decided to accelerate the pace of increase in the monetary base from ¥60–70 Bn to ¥80 Bn and to triple its asset purchase program. With the impact of these last moves not yet clear, we expect the BoJ to keep its stance unchanged. Consensus and TransEconomics: rate and asset purchase program unchanged.
• Brazil: Unemployment rate (Nov).
• Mexico: Unemployment rate (Nov), monetary policy meeting minutes (Dec 5), Banxico survey of professional forecasters (Dec).  Market participants will sift through Banxico minutes for hints as to how high the Bank sees the risk that recent exchange rate volatility will pass through to inflation.