FOMC confident in the Sep SEP – Westpac

Sean Callow, Research Analyst at Westpac, notes that it was another quarter with another fully-priced in Fed rate rise as this week’s hike produced a fleeting fall in the greenback, seemingly in response to the removal of the long-standing description of the policy stance as “accommodative.”

Key Quotes

“Fed chairman Powell clarified that this change “does not signal any change in the likely path of policy.”

“A speculative market heavily long dollars will have hoped for a catalyst for fresh gains.”

“In the quarterly SEP, the FOMC raised its median forecast for GDP growth over the year to Dec 2018 from 2.8% to 3.1%. This may not be the much boasted-about 4% pace but it is a long way above the Fed’s estimate of potential growth, which the Fed kept at 1.8%.”

“With the unemployment rate already in the mid-3% area and core inflation at 2%, little wonder the FOMC is projecting the funds rate to rise above the long term or neutral rate.”

“The medium term USD outlook remains broadly positive.”

“Near term though, there could be a mild pullback on profit-taking, with pricing already above 80% for a Dec hike and plenty of event risk before then, notably the 6 Nov midterm elections.”