FOMC: Further rate hike coming this year - SocGen

The FOMC raised rates by 25bp, maintained a projection that suggests a further rate hike this year, while the infamous dot-lot looks for a 2.9% funds rate at the end of 2019, and a 3% rate ‘in the long-term, according to Kit Juckes, Research Analyst at Societe Generale.

Key Quotes

‘”Inflation forecasts for 2017 were cut and GDP forecasts were nudged up. Recent soft inflation was described as being transitory and more detail emerged of the plan to run down the Fed’s balance sheet. The short version of that is that they may start this autumn, and they will move slowly – so slowly that the balance sheet will surely still be huge when the ext recession comes along.”

“Cue a debate about whether this was a hawkish move, given the absence of inflation. Surely we would have been extremely critical if they had left rates on hold when it was Fed communication more than anything else that persuaded the markets to price a move in with so much confidence. The Fed only wants to move when doing so is discounted by markets, so they have delivered this one despite the soft CPI print. But crucially, the tone of the discussion in the press conference about neutral rates still reflects huge uncertainty and concern about how low they are. The median long-term dot in the Fed Funds dotplot may be at 3% but Janet Yellen doesn’t sound as confident of when ‘neutral’ is as is about the probability of hitting the inflation target.”