Fed still expects one more hike this year and three next year – Danske Bank

It was not a big surprise that the Fed kept the target range unchanged at 1.00%-1.25% and announced ‘quantitative tightening’ will begin in October, according to the research team at Danske Bank. 

Key Quotes

“More interestingly and in line with our expectations as written in our preview, the Fed maintained its current policy signal, as the median ‘dots’ were unchanged at one additional hike this year and three hikes next year and the Fed did not make changes to inflation wordings in the FOMC statement despite low inflation. The Fed still says it is monitoring inflation ‘closely’ and Yellen repeated at the press conference that she thinks the low inflation is ‘transitory’. Markets had expected a more dovish Fed, so in terms of market expectations (but not ours), this was a ‘hawkish hold’ leading to a stronger dollar and selloff in US fixed income markets.” 

“The statement and dots confirm our view that while the four most dovish members (probably Bullard, Brainard, Evans and Kashkari, in our view) are still concerned about low inflation and do not think it is appropriate to raise rates further this year, core FOMC members still believe that above-trend growth and a tighter labour market will lead to higher wage growth and hence inflation eventually.”