Fed still likely to delay first rate hike

The Fed clearly wanted to signal last week that a rate hike in December was a realistic possibility but, on balance, we still anticipate that it will be delayed until early next year. It’s recently become clear that a couple of Fed Governors, as well as a number of regional Fed Presidents, don’t have the same faith in the Phillips curve that Chair Janet Yellen still does. Those officials are holding out for firm signs that wage growth and/or price inflation have begun to accelerate. On the basis of the latest incoming data, that just hasn’t happened yet. It did briefly appear that core inflation was accelerating over the summer, but the three-monthannualised growth rate of the core PCE deflator has most recently fallen back to only 1.3%. Similarly, ECI wage growth has dropped back to only 2.0%.