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Post FOMC Commentary

14 June 2018

The FOMC raised short-term interest rates to 1.75% - 2% as expected and gave a slightly hawkish overall message.

As expected, the updated Summary of Economic Projections showed a more optimistic view on the US economy and raised the outlook on growth and inflation. The Fed expects Core PCE to reach its target over the next 3 years.

The median dot rose by 25bp in 2018 and 2019, which for the latter, came as a surprise. The FOMC expects now five more hikes until the end of 2019. Despite those changes, the market has not moved much and is currently pricing just over 3 hikes over the same period. The gap seems a bit too wide.

The FED raised the IOER rate by 20bp as expected.

The statement was also on the hawkish side: no longer making reference to market-based measures of inflation remaining low, and the statement reflects more confidence on future adjustments of short-term interest rates. 

Finally, the Chairman J Powell said that there will be a press conference after every FOMC meeting beginning in January 2019. 

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