The FED raises rates and goes hawkish with three hikes for 2017 predicted. They also acknowledge the rise in inflation expectations. The unanimous decision boosts the dollar. Afterward, Yellen downplays the change in the dot-plot, saying it was only down to a few members. The greenback’s gains are limited. Update: they are renewed after the initial retreat.
As the dust settles, the US dollar gradually gains more ground but seems to hesitate. It is worth noting a small upgrade in growth prospects for 2017, up to 2.1%. In addition, the long-term interest rate has been upgraded to 3%. Yellen repeated the “data-dependent stance”. All in all, a hike is a hike, but one may question the level of hawkishness seen in the dot-plot.
See the live blog for a detailed write-up of the event.
More detailed reactions:
- EUR/USD approaches low support on FED hike – will it break?
- AUD/USD dips under 0.74 on the FED’s hawkish hike
- USD/CAD leaps towards 1.33 on FED hike & hawkishness
- GBP/USD bounces at support on FED hawkishness – this could hold
- Dec FOMC: No More Hawkish Than Needed; Market To Reprice More Hikes – CIBC
The Federal Reserve was widely expected to raise rates at the one-year anniversary to the historic post-crisis rate hike. The big question was: what’s in store for 2017, with two rate hikes seen by both markets and the previous dot-plot. This is an important FOMC featuring the statement, forecasts (including the dot-plot) and also the press conference by Janet Yellen. Full preview: Three scenarios, only one is USD positive.
Markets were quite tense ahead of the big moment, with the dollar sliding just a bit.