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FOMC Preview: What 9 major banks are expecting from December meeting?

Today, we have an outcome of the all-important FOMC’s December meeting, which is keenly awaited by the markets. As we head towards the decision timings, here are the expectations as forecasted by the economists and researchers of 9 major banks, along with some thoughts on the future course of Fed’s action.

Most economists and analysts suggest, that the focus today will be on the policy statement language and Chairman Powell's press conference, after the Fed has well-telegraphed 25 bps hike.

In addition, banks expect the Fed to raise the rate on excess reserves (IOER) by 20bps. However, the views are slightly divided on the dot plot as they expect that the Fed will likely indicate two to three hikes for 2019, and the overall tone may have a slightly dovish twist.


“The FOMC is widely expected to hike a further 25bp, taking the target range for the fed funds rate to 2.25-2.50%. The focus for markets will be on to what extent the FOMC follows through on the recent dovish communication shift, and lowers its projections for future rate hikes.”

“We expect a fall in the ‘dots’ to signal two further rate hikes in 2019 (down from three), but for 2020 to be unchanged at one rate hike. We also expect some tweaks to the statement, particularly regarding the need for ‘further gradual increases’ in rates, which was hinted at in the November minutes. We expect some qualifiers to be added to this statement to suggest we are approaching the end of the rate hike cycle.”

Standard Chartered

“We expect the FOMC to raise the federal funds target rate (FFTR) by 25bps, bringing the upper band to 2.50%, and to raise the rate on excess reserves (IOER) by 20bps to 2.40%. The tone of the statement and press conference is likely to remain cautious on the global outlook and relatively upbeat on domestic outlook.”

“We assign a 50% chance to the median expected FFTR declining to reflect two rather than three hikes in 2019. Only two ‘dots’ would need to move lower for this to happen, and such a move could help to quell market jitters.”


The Fed is widely expected to hike rates to 2.50%, leaving the focus on the policy statement language, Chairman Powell's press conference, and updated economic projections.”

“We look for Powell to sound cautiously upbeat on the outlook although the statement is likely to include less forward-looking language, consistent with an emphasis on data dependency.”

“Changes to the FOMC statement language should remove the last vestiges of forward guidance, making policy even more data dependent and hinting that policy may be approaching the end of the cycle. In his press conference we expect Chair Powell to continue to sound cautiously optimistic on the outlook and to try to calm market concerns about over-tightening.”


“The well-telegraphed 25 bps hike in the target range for the federal funds rate on December is expected to be a ‘hike light’, accompanied by only a 20 bps increase in the IOER rate, a downward shift in the dot plot, and an increased emphasis on the data dependency of the Fed’s hiking cycle.”

“We expect the Fed to hike again in March, before taking a pause. We also expect the yield curve to invert after that hike, signalling a recession in 2020, and ending the hiking cycle altogether.”

“The new FOMC projections – to be released on December 19 – are likely to reflect the deterioration that we have seen so far. However, if the FOMC participants will remove only one of the three hikes for 2019, that would still leave the dot plot with one more hike than markets are currently expecting for next year.”

“The FOMC post-meeting statement may also be adapted to reflect the increased data dependence.”


“Markets broadly expect a 25bp rate rise on Wednesday and we agree. After all, the economy is booming, inflation is at or above the 2% target and the jobs market is finally generating wage pressures.”

“However, the outlook for policy in 2019 is more uncertain. Back in September the Federal Reserve “dot diagram”, which shows the individual predictions of FOMC members, pointed to a median expectation of three 25bp rate rises next year with a further 25bp hike in 2020. Market participants are increasingly sceptical of this with Fed funds futures contracts no longer even fully pricing in one hike in 2019.”

Danske Bank

“We expect the Fed to raise rates again this week. This would bring the target range to 2.25-2.50%, i.e. the lower end of the broad range of the estimates of the neutral rate according to the September dots (2.5-3.0%, with most saying 3.0%). While we think the Fed’s base case remains that the gradual hiking cycle will continue a bit further, the Fed will probably remove more of its forward guidance to increase its flexibility (as it did in June), as risks to the rate outlook become more two-sided with the Fed funds rate in the broad neutral range. Do not be surprised if the Fed removes that it ‘expects further gradual increases in the target range’ from the statement. It makes sense to get rid of the one-sided rate outlook, as monetary policy becomes more neutral.”

“We think the Fed will continue to signal three hikes next year but see risks that the 2020 and 2021 dots are lowered. The longer-run dot is likely to be unchanged at 3.00%.”

“Note there will most likely be another technical adjustment to the Interest rate on Excess Reserves (IOER), as IOER would most likely be raised by only 20bp as in June. The reason is that the Fed has a preference for having the effective Fed funds rate in the middle of the target and right now it is trading only 5bp below the upper end of the target (and equal to the IOER).”

Nordea Markets

The Fed meeting will be the most keenly awaited meeting in a while due to the softening of the tone from Fed Chair Powell in recent weeks. The market is currently only pricing a little less than one full hike for 2019 under the assumption that the Fed delivers a 20 bp hike of IOER next week.”

“The dot plot (if they at all keep it as a communication tool – some market observers have suggested scrapping the dot plot) will likely indicate only two hikes for 2019 (down from three). It is highly doubtful whether that is enough to spur a hawkish repricing of the Fed.”

“We would not be surprised to see another slightly dovish read of a G10 central bank - or at least the Fed will probably try not to spur a hawkish reaction.”


“In recent weeks, the market has materially reduced their expectations for rate hikes over the coming year. However, pricing for the December meeting itself has remained firm.”

“Given the tension between the FOMC's 2019 view on rates and that of the market, the quarterly revision to forecasts and the tone of Chair Powell's press conference will be assessed very carefully. While we believe that these communications are likely to acknowledge the risks and the data-dependent nature of policy, we foresee the Committee continuing to forecast multiple rate hikes through 2019. We anticipate one per quarter to 3.125% at September 2019.”


“The final FOMC meeting of 2018 (18–19 December) is turning out to be far more eventful than the market anticipated two months ago. Recent communication and softer data have tilted the market to price in a very benign outcome.”

“After an expected 25bp hike at this meeting, the US Federal Reserve is now priced to hike once in 2019 and then pause for the rest of the cycle. In addition, long-dated OIS contracts imply an estimate of 2.5% for the neutral rate of interest, which is at the bottom end of Fed’s official estimates.”


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