Fed undeterred by weak core inflation

The Fed’s decision today to keep interest rates unchanged at 1.0-1.25%, as well as its long-anticipated move to formally announce the start of the balance sheet normalisation process next month, came as little surprise. The bigger news was that, despite the weakness of core inflation in recent months, a clear majority of Fed officials continues to project one more 25bp rate hike by year-end. Accordingly, we expect the Fed to raise rates again in December, and still expect an additional four hikes in 2018.