March 2017 FOMC decision - Analysts react

"The dot plot is pretty much unmoved but we do seem to have a bit more consensus around rates in 2019. Of note, Neel Kashkari didn't think rates should rise yet, which highlights there are still meaningful doubts about just how quickly and how far the Fed should raise rates in this cycle. This case is simply based on a lack of wage growth, which holds back inflation. The temptation to hike is being tempered by the fact that labour market slack (of which there is more than headline figures might suggest), means there is hardly any pressure on wages and that means inflation should be steady and unspectacular - certainly not worthy of aggressive hiking," Neil Wilson, senior market analyst at ETX Capital

"The only notable changes in the statement were all related to inflation. Here, the FOMC acknowledged twice that the 2% target has basically been met. At the same time, however, the statement highlighted (i) that the inflation target is symmetric, which means that the Committee is willing to tolerate a temporary overshoot, and (ii) that the Fed wants to see a "sustained" return to 2% inflation. This clearly helped to avoid sending a too hawkish message. Overall, the Fed now seems to be happy with its own outlook for three hikes per year, and the fact that financial markets agree with this projection." - Dr. Harm Bandholz, Chief US Economist at UniCredit Research

onomic forecasts are little changed, though the Nairu estimate has been cut again - for the last time, surely - by a tenth to 4.7%, and the core PCE deflator forecast for Q4 this year has been nudged up to 1.9% from 1.8%, giving the Fed very little room for maneuver. We expect bigger changes in the forecasts - to the upside - in June, given the Fed the excuse to hike rates at that meeting and signal further increases in Sep and Dec. We think they'll add another dot to the plot for 2018 too, so the Treasury market has some adjusting to do." - Ian Shepherdson, chief economist at Pantheon Macroeconomics

"In the statement, the committee modestly upgraded its assessment of business fixed investment, saying that it "appears to have firmed somewhat" and, more importantly, said that "inflation has increased in recent quarters, moving close to the committee's 2 percent longer-run objective." [...] By hiking today and not steepening its median policy path, we view today’s decision as the FOMC taking advantage of favorable financial market conditions as opposed to an opening step to a faster pace of rate increases. [...] This should be read by investors as suggesting the Fed remains mostly focused on trends in core inflation when deciding on subsequent rate hikes." - Michael Gapen, Rob Martin at Barclays Research

"The median for 2018 would flip to four hikes if just one of the six officials currently projecting three hikes switched to four instead. By the time the projections are submitted again in June, Daniel Tarullo, presumably one of those six, will have left the Fed, leaving room for President Trump to make three appointments to the Fed Board. Overall, we still expect that in response to rising inflation, the Fed will hike rates by a total of four times both this year and next, taking the fed funds target range to between 1.50% and 1.75 by end-2017, and to between 2.50% and 2.75% by end-2018." - Paul Ashworth, chief US economist at Capital Economics

"While the Fed hiked interest rates, Kashkari voted against, showing not all FOMC members agree it's the right time to normalise monetary policy. This contradicts the recent bullish market consensus. The latest US data points to somewhat slower economic growth, and weaker inflation. The Atlanta Fed’s GDPNow estimates for the first quarter have been revised down several times since the beginning of February, and a very well supplied crude oil market could quickly reverse the upward trend in energy prices. This was reflected in February’s inflation releases, and data suggests that if crude oil prices do not reach new highs, they will start dragging inflation down from April onwards." - Manuel Ortiz-Olave, Market Analyst at Monex Europe