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Slightly dovish FOMC, dropping the « accommodative” stance.

28 September 2018

The FOMC raised the federal funds rate by 25bp to 2%-2.25% as expected. The dot chart showed a slight increase to the longer run median dot but with no change to the 2018-2020 median dots.

The new 2021 dots suggest no additional tightening during the year. Regarding the economic outlook, the updated forecasts include upward revisions to GDP projections for both 2018 (3.1% vs 2.8%) and 2019 (2.5% vs 2.4%). Inflation forecasts were largely unchanged (-0.1% on headline inflation in 2019 was the only change).

The main change is that no reference was made to monetary policy remaining accommodative, suggesting that the Fed is starting to foresee the end of the tightening trend, albeit still in a few years’ time.

As a consequence of this removal, the message is on the dovish side but doesn’t change fundamentally the Fed policy going forward, with additional tightening still to come in the foreseeable future.  

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