Synopsis:

As anticipation grows surrounding the FOMC's November policy meeting, Bank of America (BofA) anticipates a decision from the Fed to maintain interest rates, even in the face of growing GDP and job numbers. The move to a more wary stance by the Fed is largely attributed to the upward trend seen in UST long-end rates, with a sentiment that the rates markets are already effecting some tightening.

Key Points:

1. Steady Rates Amid Economic Progress: Despite the positive trajectory of GDP and employment statistics, BofA believes the Fed will opt for rate stability.

2. Powell's Predicted Remarks: Chair Powell, during the upcoming press conference, is expected to emphasize the Fed's approach of "proceeding carefully." Queries are anticipated on why a 5.5% fed funds rate is viewed as restrictive in light of a 4.9% real GDP growth and the uptick in September's payroll numbers. Powell is likely to retain his stance that further rate hikes may be in order only if there's "additional evidence" of growth or a tightening labor market.

3. Rate Hike in December: BofA projects another rate hike to occur in December, albeit this would follow the current meeting's forecasted steady rate decision.

4. Differing Perspectives on Rate Rise: While the Fed believes the recent rate increase is a result of term premium, BofA contests this viewpoint. In their analysis, the growth-enhanced rates coupled with a decrease in anticipated Fed reductions have driven this rate rise, though a supply-demand imbalance has certainly given some impetus.

5. Post-FOMC Rate Dynamics: After the FOMC's November communications, BofA foresees a likely steepening in the rates curve, accompanied by inflation breakevens widening.

6. USD Stability: In light of the base-case expectations for the FOMC, the USD is not projected to veer significantly from its recent range.

Conclusion:

While the forthcoming FOMC meeting is poised to deliver no drastic shifts in interest rates, the macroeconomic landscape will be a key area of discussion. BofA suggests the potential for a rate hike in December and emphasizes the nuanced reasons for the recent rate increase. The dollar, according to BofA's analysis, is set to remain fairly stable, regardless of the outcomes of the meeting.