The Federal Reserve raised interest rates in the final decision for 2018 but reduced expectations for 2019. What does this mean for the dollar?
Here is their view, courtesy of eFXdata:
SEB Research discusses its reaction to today’s FOMC policy decision in which the Fed delivers a dovish hike in line with market’s expectations (see here).
“Dovish Fed hike. Despite speculation that the equity sell-off and Trump criticism could force the Fed to reconsider a December hike, the central bank raised the target range for the federal funds rate to 2.25 to 2.50 per cent as we predicted. The vote was unanimous. The Fed’s own rate path (the “dots”) shifted to indicate two rather than three hikes in 2019. This means that the Fed’s forecast for 2019 is now in line with our forecast. The dots still indicate one hike in 2020.
Equity markets reacted negatively to the statement while yields rose slightly and the USD strengthened,” SEB notes.
All-in-all, the outcome of today’s meeting was in line with our expectations and for the time being we are sticking to our forecast that the Fed will follow up today’s rate hike with hikes in March and June.
That said, risks to the forecast of two hikes in 2019 are on the downside and the timing of the hikes is uncertain. The meeting minutes are published on January 9 and will provide more details,” SEB argues.
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