FOMC outlook hasn’t materially changed during the inter-meeting period - Nomura


Analysts at Nomura explain that as expected, the FOMC raised the federal funds target range from 0.50-0.75% to 0.75-1.00% and in the press conference, Chair Yellen indicated that the economy has made solid progress toward the goals of maximum employment and 2% longer-run inflation target but she also said that the economy evolved as the FOMC had expected and their outlook hasn’t materially changed during the inter-meeting period.

Key Quotes

“Consistent with her remarks, the median of the participants’ policy rate projections (the “dots”) for 2017 and 2018 did not change from the projections in December meeting. It is important to note that there was no change to the median of the FOMC’s longer-run policy rate forecasts, implying that the participant’s estimates of neutral rate did not change materially. Yet, there were some upward shifts in the lower tail of the distribution. The 25th percentile of the distribution of 2017 and 2018 moved up slightly. Considering improvement in financial conditions and upside risks to growth, it is not surprising that the lower tail of the distribution shifted slightly toward the current medians. Only 2019 median changed, which moved up to 3% from 2.875%.”

“Consistent with Chair Yellen’s message that the economy is in line with the FOMC’s forecasts, its other economic forecasts did not change much. As expected, median core PCE inflation for 2017 increased to 1.9% from 1.8%, reflecting the recent firming of core goods prices.”

“The bottom line of message is that this decision does not reflect a “reassessment” of the economic outlook or the appropriate course for monetary policy. As the economy evolves in line with the FOMC’s expectations, it is likely that target policy rates will go up in line with the FOMC’s forecast. As such, we do not expect any acceleration in the pace of hikes as long as economic developments remain on track. As a result, we maintain our monetary policy outlook, expecting two more hikes this year and two more next year.”

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