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.”