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Just as was widely expected, the Fed Reserve sat tight on the rates, keeping intact the promise of Dec meet being the one where another and last rate hike for 2019 will come.

The overall tone of the Fed was upbeat while assessing the US economy, making one feel that the rate hike will indeed come in next month. The fact that the Fed said nothing, which would dispel any doubts about a rate hike is construed as a certainty – the fourth rate hike of 2019 will come for sure.

The only change to the statement pertained to the pull back in the business investment, where the Fed said that it had moderated from its rapid pace earlier in the year.

But at the same time, there is a growing voice of dissent on Wall Street that there is a short term liquidity crunch in the system due to Fed’s unwinding of its balance sheet. Its widely expected that the Fed’s unwinding will end by Dec 2019.

A quick look at the Fed monetary policy statement:

  • The Committee decided to maintain the target range for the federal funds rate at 2 to 2-1/4 percent.
  • Labor market has continued to strengthen and that economic activity has been rising at a strong rate. 
  • Job gains have been strong, on average, in recent months, and the unemployment rate has declined.
  • Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year.
  • On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent.
  • Indicators of longer-term inflation expectations are little changed, on balance.
  • Risks to the economic outlook appear roughly balanced.
  • In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.
  • It was a unanimous decision with all nine members of the FOMC voting for a pause.

In the Indian markets, the mood remains festive and Muhurat Trading did not disappoint, 28 of 30 Sensex stocks end higher in the one-hour special session on Thursday evening.

The Cabinet decision to privatise 6 airports under PPP model with  AAI holding minor stake is a good move; we only need to see how many takers will jump into the fray.

But once the festivity ends, we will need to contend with this news  – the report by Crisil which says that post IL&FS, there is a crisis of confidence as some 50 of the top NBFCs will need Rs 950 billion to repay debts for which banks will have to lend more to the sector to avoid default.

The market will now wait for the IIP and CPI data due on Monday. But all attention will now get diverted to the state elections scheduled to begin this month. Five states go to the polls - Chhattisgarh voting on Nov 12 and Nov 20;  Madhya Pradesh and Mizoram to vote on November 28 and Rajasthan and Telangana to vote on December 7. Results for all five states will be declared on 11th Dec.

Well, all this will go on; for now enjoy ongoing festivities.

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