FOMC hints at more rate hikes - NBF

According to National Bank of Canada’s analysts, Krishen Rangasamy and Paul-André Pinsonnault, the US central bank sounded a bit more hawkish in today’s statement. The Fed kept rates unchanged as expected. 

Key Quotes:

“The last FOMC meeting presided by Janet Yellen provided no major surprises, as the Fed opted to leave the fed funds rate unchanged at 1.25-1.50%. There were, however, subtle but significant changes in the statement which altogether sounded a bit more hawkish. The Fed seems somewhat more confident about its inflation outlook, acknowledging the increase in marketbased measures of inflation compensation, and expecting inflation to move up this year. This more confident tone reflects an improving economy that has made possible “solid” gains in employment, household spending, and business fixed investment.”

“While it decided to stand pat on rates, the Fed made clear that it is considering raising interest rates if the economy continues to improve. The slightly more hawkish tone, especially on inflation, sets the stage for a possible interest rate hike in March (during Jerome Powell’s first meeting as Fed Chair), when the Fed will also release new economic projections. The output gap has turned positive according to the Congressional Budget Office, and the labour market has become tight as evidenced by a jobless rate at multi-year lows and still-elevated job openings. Those developments likely explain the Fed’s improved confidence in achieving its inflation objectives. The statement does nothing to change our view that the FOMC will deliver three interest rate hikes this year.”