No surprises from the Fed – Danske Bank

Aila Mihr, Analyst at Danske Bank, assessed yesterday’s neutral FOMC meeting.

Key Quotes

“As expected, the Fed maintained its target range unchanged at 0.50-0.75% at the meeting yesterday and made no major changes to the FOMC statement”.

“We did not get any significant news on the Fed’s economic outlook or when to expect the next Fed hike, so it will be important to look for hints in upcoming Fed speeches and the minutes”.

“Based on the December meeting, the Fed still awaits more information about Trumponomics as ‘almost all’ FOMC members think there are upside risks to their growth forecasts”.

“We still expect two Fed hikes this year (in June and December), but the probability of a third hike has increased due to a combination of strong US data and a more hawkish Fed at the December meeting”.

“Since the Fed did not give any signals as to when to expect the next hike, a hike already in March now seems unlikely, as the Fed usually tries to prepare markets for upcoming hikes. However, if the economy continues to surprise on the upside and markets stay calm, a hike could come already in May”.

“Whereas markets currently have priced in two hikes a year in 2017 and 2018, we expect the Fed to hike more often, with three to four hikes in 2018”.