Fed: On track for a September hike and continued gradual removal of accommodation – TDS

The Fed left, as expected, interest rates unchanged. According to analysts from TDS, the US central bank will raise rates again in September and thereafter through September of next year with quarterly hikes.  

Key Quotes:  

“The Fed made no changes to its FOMC statement in August other than some widely-expected mark-to-market edits of the opening paragraph, to reflect the strong Q2 GDP report and inflation moving “near” to the Fed’s longer-run 2% target.”

“We forecast another hike in September with quarterly hikes thereafter through September 2019, bringing the terminal fed funds rate for this hiking cycle to 3.25%. This value is slightly above the FOMC’s estimate of the longer-run neutral rate.”

“Although a number of sources have noted the heightened concern about trade policy “” including the Beige Book, the manufacturing ISM survey, and the UMich consumer sentiment survey “” the FOMC left the balance of risks unchanged.”

“There are likely to be more interesting discussions in the minutes, released in three weeks’ time. These may include: how the Committee assesses the risks around the inflation outlook and how much overshooting of its target it foresees; risks to financial stability; how trade and fiscal policy potentially influence the outlook; how to interpret the flattening yield curve; whether (and how much) to hike beyond neutral; and when to start considering changes to its balance sheet policy.”

“The nearly unchanged August FOMC statement was a nonevent for the Treasury market.”

“For FX markets, the Fed statement was a giant yawn. Focus should turn elsewhere as other major central banks make policy changes of their own including our expectation for a hike by the Bank of England tomorrow.”