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Post Fed commentary by Hervé Chatot

22 March 2018

The FED hiked rates by 25bp in line with market expectations and projected a higher pace of the monetary policy in response to an improved economic outlook.

The median federal funds rate for 2018 remained unchanged at three rate hikes but just barely, and now implies three hikes in 2019 and two hikes in 2020. The median dots for 2019 and 2020 increased by 19bp and 31bp. The median longer-run projection rose a tenth to 2.9%,

In the Summary of Economic Projections, the FED raised their forecast for GDP growth higher for both 2018 and 2019. The path for the unemployment rate was revised lower while inflation Core PCE was revised modestly higher in 2019 and 2020.

The FED confirmed that inflation is firming but only gradually. Three rate hikes remains the baseline scenario for this year. Chairman Jerome Powell emphasized the data dependence to adjust further its monetary policy if needed.

Those decisions are in line with our expectations but we were not expecting a dovish market reaction considering the outcome.

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