Market response to the September FOMC - Westpac


Richard Franulovich, Research Analyst at Westpac, notes that the FOMC left policy unchanged, the statement and Chair Yellen though made clear that the “case for an interest rate increase has strengthened”, without committing to a specific meeting, while the dot plot shifted in a dovish direction throughout the forecast period.

Key Quotes

“In summary, a hawkish hold in the statement and a dovish set of dots.

·         The Fed made several key changes to its statement, all in a slightly more hawkish/constructive direction. The Fed now explicitly notes that, "Near-term risks to the economic outlook appear roughly balanced," a characterisation the Fed has eschewed from making for some time. That replaces, "near term risks have diminished."

·         The statement also inserted a fresh line indicating the possibility of a rate increase, borrowing from Chair Yellen’s Jackson Hole speech, “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” This is entirely sensible, keeping the case for a December hike firmly on the table without fully committing to it.

·         There were three dissenters who favoured a hike – George, Mester and surprisingly, Rosengren.

·         The assessment of current conditions saw only cosmetic changes - the Fed describes the labour market as continuing to “strengthen” and notes that activity has “picked up from the modest pace seen in the first half of this year”.

·         The dot plot showed the highly anticipated dovish tilt. For 2016 the median dot is at 1 hike, down from 2. That was always going to happen given there remains just one meeting this year where the Fed could feasibly lift rates – 14 Dec. Their next meeting, 2 Nov, is compromised by the presidential election a week later and in any case there is no press conference or fresh projections to help communicate a potential hike. There are three dots in favour of no change in rates this year, one might argue Bullard, Brainard, Tarullo or Evans based on recent commentary. That makes for quite a diversity of opinion - 3 favouring no hikes this year and 3 favouring a hike today.

·         As for 2017, the median favours 2 hikes, down from 3, while the 2018 median is unchanged at 3 hikes. The more dovish bias is clear to see when 2016 and 2017 are combined. Back in June the median dot showed 5 hikes through to end 2017 (2 in 2016 and 3 in 2017). Three months later the revised dot plot shows 3 hikes to end 2017 (1 in 21016 and 2 in 2017). The long run neutral rate fell 12.5bp to 2.875%.

Market implications

·         With market pricing for a 14 Dec hike already hovering at a relatively elevated 55-60% probability for some time there is not a heck of a lot of fresh potential interest rate support to fuel a meaningful leg up in the USD.

·         We do not feel that the USD has the wherewithal to make a more concerted run higher in the next few weeks - the ECB does not appear to be in any rush to extend QE, our US data surprise index remains a fair distance from hitting rock bottom levels while the FOMC is unlikely to deliver anything more than a very “dovish” December hike.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD hits two-week tops near 1.0500 on poor US Retail Sales

EUR/USD hits two-week tops near 1.0500 on poor US Retail Sales

The selling pressure continues to hurt the US Dollar and now encourages EUR/USD to advance to new two-week peaks in levels just shy of the 1.0500 barrier in the wake of disappointing results from US Retail Sales.

EUR/USD News
GBP/USD surpasses 1.2600 on weaker US Dollar

GBP/USD surpasses 1.2600 on weaker US Dollar

GBP/USD extends its march north and reclaims the 1.2600 hurdle for the first time since December on the back of the increasing downward bias in the Greenback, particularly exacerbated following disheartening US results.

GBP/USD News
Gold maintains the bid tone near $2,940

Gold maintains the bid tone near $2,940

The continuation of the offered stance in the Greenback coupled with declining US yields across the board underpin the extra rebound in Gold prices, which trade at shouting distance from their record highs.

Gold News
Weekly wrap: XRP, Solana and Dogecoin lead altcoin gains on Friday

Weekly wrap: XRP, Solana and Dogecoin lead altcoin gains on Friday

XRP, Solana (SOL) and Dogecoin (DOGE) gained 5.91%, 2.88% and 3.36% respectively on Friday. While Bitcoin (BTC) hovers around the $97,000 level, the three altcoins pave the way for recovery and rally in altcoins ranking within the top 50 cryptocurrencies by market capitalization on CoinGecko. 

Read more
Tariffs likely to impart a modest stagflationary hit to the economy this year

Tariffs likely to impart a modest stagflationary hit to the economy this year

The economic policies of the Trump administration are starting to take shape. President Trump has already announced the imposition of tariffs on some of America's trading partners, and we assume there will be more levies, which will be matched by foreign retaliation, in the coming quarters.

Read more
The Best Brokers of the Year

The Best Brokers of the Year

SPONSORED Explore top-quality choices worldwide and locally. Compare key features like spreads, leverage, and platforms. Find the right broker for your needs, whether trading CFDs, Forex pairs like EUR/USD, or commodities like Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures

Best Brokers of 2025