Fed: Rearranging the dots – Westpac

After the US Fed for a third consecutive quarter delivered a 25bp funds rate rise alongside fresh forecasts and a press conference, the key question for markets is whether both the Sep and Dec quarterlies will produce the same result, or just one of these, according to Sean Callow, Research Analyst at Westpac.

Key Quotes

“We weren’t overly surprised that the median “dot” for 2018 rose to 2.25- 2.50% at this meeting, because US growth looks set to rebound in Q2, inflation is heading towards the Fed’s 2% target and because we only needed 1 FOMC member to raise their forecast for 2018.”

“Indeed, it was only the one member who moved, so we shouldn’t overstate the hawkishness of the change.”

“On the positive side, the projections reinforced recent comments from officials that the Fed’s baseline scenario is that the funds rate is likely to be raised a little above the long term or neutral rate.”

“We continue to expect this to lend underlying support to the US dollar, albeit tempered by the US’s widening fiscal and trade deficits and of course the fact that markets already have priced in ongoing rate rises.”

“Near term, USD may consolidate as it could lack fresh yield support. Growth expectations and business surveys are already elevated, so to stoke a further yield rise, the dollar may need an acceleration in wages.”