FOMC: Another hike, unchanged dots – Natixis

Thomas Julien, Research Analyst at Natixis explains that as expected, the Fed increased the target range of the Fed funds rate by 25bps (to 0.75-1.00%) and while the wording of the statement was slightly less hawkish than expected, the economic forecasts were left roughly unchanged still indicating that the Fed has not factored in any change in fiscal policy at this point.

Key Quotes

“The 2017 and 2018 median of the dots remained unchanged and consistent with a pace of 3 hikes per year.”

“The Statement: +25bps hike 

• On economic conditions and outlook: The description of the labor market was mostly unchanged (unemployment rate was described as “little changed”). Business investment has “firmed somewhat”. Inflation has increased and is now “moving closer” to the Fed’s target (versus “still below” before”). Yet, the Fed now mentions that “excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 percent” which can be perceived as a dovish comment.  The Fed now expects inflation to stabilize around 2% (versus “rise” before). The Fed left the characterization of near term risks as “roughly balanced.”
• More Hawkish: the committee now says that economic conditions “will warrant gradual” hikes (versus “will warrant only gradual hikes” before).     
• N. Kashkari dissented from the decision as he would have preferred to maintain a status quo at the meeting.”

“Summary of economic projections (SEP): similar growth forecasts and unchanged dots

• Economic forecasts were left virtually unchanged, indicating that the Fed has not changed its view on the current economic expansion (i.e. still not pricing any change in fiscal policy).
• The “dots”: the median of the dots remained unchanged in 2017 and 2018 and consistent with a pace of 3 hikes per year.”