On Wednesday at 2PM, the FOMC will publish its September rate decision and economic projections, followed at 2:30PM ET by Chair Powell’s press conference. With a 25bps rate hike priced in, attention will be the on December 2018 meeting, as well as the 2019 “dots”, where the risk is that the median dot may fall given several new dovish participants making projections. This will also be the first FOMC forecast that includes 2021.

While there will hardly be any bombshells tomorrow, here’s what to expect, courtesy of RanSquawk:

RATES: The FOMC is expected to lift rates by 25bps to 2.00-2.25% at its September meeting, which would be the third rate rise in 2018, of the four rises forecast in its June dots. Money markets are pricing the hike with a very high degree of certainty, and prices two more rate hikes this year with around 80% certainty. In recent commentary, policymakers have generally said that they are comfortable with pursuing a gradual course of rate rises, and accordingly, Citi’s analysts say that the focus is on whether the FOMC will lift rates again in December, and if the Fed will push policy rates into “restrictive” territory (above around 3.0%) in 2019. (The Fed’s current rate forecast configuration is for four hikes in 2018, three hikes in 2019, and a single hike in 2020).

NEUTRAL RATES: The FOMC recent projections pencil in rates between 2.75-3.00% in the long-run. The range of policymaker estimates of the neutral rate is between 2.50-3.50%. The debate about what the Fed should do when it gets to neutral is gaining traction, with some participants looking for a pause giving it time to evaluate the situation, while others suggested that lifting rates above neutral.

RISKS TO THE OUTLOOK: Officials seemed generally comfortable in the inflation outlook, with the likes of Powell, Brainard, and Williams seeing little signs of runaway inflation. Barclays notes that the August meeting minutes made 32 references to a “strong” economy, more references than any minutes in recent years. “Although downside risks appear to have risen, none of these seem to unduly occupy the Fed’s attention,” Barclays writes. “Some on the committee see upside risks from fiscal stimulus, while others have concerns that fiscal stimulus may fade quicker than expected. Protectionism, housing, oil prices, and an abrupt slowing in emerging market economies are also on the Fed’s radar as potential downside risks.” Accordingly, the bank believes that the FOMC will continue to categorise risks as “roughly balanced.”

YIELD CURVE: Fed officials are broadly in two camps, Goldman Sachs notes: those who have downplayed the signal from a potential yield curve inversion (Brainard, Evans, Mester, Williams), and those who will place a significant amount of emphasis of the yield curve on their policymaking (Bostic, Bullard, Kaplan). TD Securities expects Chair Powell “to remain cautious and data dependent here, noting that the yield curve is but one of a number of indicators the Fed is watching. He also is likely to suggest that the Fed does not necessarily see a flat or inverted yield curve as a reason to halt rate hikes.”

TRADE: Zerohedge has noted that mentions of trade tensions has been rising in the Fed’s recent Beige Books. There were 41 instances of the word “tariff” in the September Beige Book, rising from 31 in the July. And the impact is negative: “Tariffs were reported to be contributing to rising input costs, mainly for manufacturers,” the Beige Book stated. Fed’s Brainard this month said that trade tensions have introduced uncertainty, while Rosengren has stated that tariffs and higher oil prices causes stresses on China and a lot of other emerging economies, and that could foster the conditions where global growth takes a hit, which could be a problem for US growth.

TONE: Citi expects a dovish hike, arguing that the median 2019 ‘dot’ may fall; it explains that as the SF Fed will make a forecast (despite newly appointed Mary Daly taking her position on 1 October), and therefore the total number of dots will increase from 15 to 16 with the addition of Vice-Chair Clarida. “The median thus will be split between the 8th and 9th dot,” Citi says, “Vice-Chair Clarida may be more dovish than former NY Fed President Dudley (who will no longer place a dot, instead replaced by Williams).”

ACCOMMODATIVE“: Some have argued that the FOMC could signal its intention to continue hiking rates gradually by tweaking the description that “the stance of monetary policy remains accommodative”. Former FOMC policymaker Dennis Lockhart stated that there is no need for the Fed to tweak its current description, arguing that it remains accurate given that the current federal funds rate target remains below neutral. However, Morgan Stanley points out that the minutes of the Fed’s August meeting hints that “many participants” wanted to revise it in the “not-too-distant future”, and the bank says this leaves the Fed with three options: 1) change “accommodative” to “modestly accommodative”; 2) replace the sentence with one that describes the target rate as having moved “closer to the range of estimates of its neutral level”; 3) remove the sentence altogether; “whichever option it chooses, the Committee’s desire will be to alter the language without signalling a change in policy stance,” MS writes.

FED INDEPENDENCE: US President Trump’s recent remarks on interest rates and the Fed chair Powell have been taken as an affront on the central bank’s independence, CNBC reported. And some have now noticed that Chair Powell has been ramping up meetings with lawmakers on Capitol Hill as he seeks to protect the Fed’s independence. CNBC notes that Powell has met or called lawmakers 48 times in his first six months in office, while his predecessor Janet Yellen by comparison had only 17 contacts with lawmakers. Powell will inevitably face questions about what he has spoken to lawmakers about, though if his recent performances are anything to go by, he will likely reveal little and reiterate the FOMC conducts policy in an independent manner.

Finally, from TD Securities, this is what the potential changes to the September statement may look like:

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