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Fed fighting. Fun.

| Posted by: Paul Donovan | Tags: Paul Donovan

The US Federal Reserve left policy unchanged, but signaled that a December increase is likely. The interesting thing about the meeting was the depth of division. Three voters dissented for a hike (that almost never happens), and three members (who may not vote) do not expect any hike this year.

These divisions do not indicate a hawk-dove split, because central bank policy has ceased to be a binary decision (monetary, quantitative and regulatory channels are available now). Instead the divisions indicate the extent to which intellectual fault lines are running in multiple directions.

We expect a US rate increase of 0.25% in December, and gradual monetary tightening next year. Quantitative policy tightening will continue. Divergent Fed speeches, reflecting the intellectual disagreements within the Fed, have the potential to confuse markets.

There is little data on offer. We have regional business sentiment surveys from the US, which are vulnerable to political and media influence at the moment. US existing home sales may be worth a glance, following an anomaly in new home sales data. Euro area consumer confidence is due.