FOMC meeting puts Powell, dots on centre stage – Standard Chartered

Analysts at Standard Chartered explain that the FOMC March meeting statement had a more hawkish tilt than they expected, but judging by price action, did not deliver fireworks as far as markets are concerned – this was likely the Committee’s goal.

Key Quotes

“The FOMC raised the fed funds target range (FFTR) by 25bps to 1.50-1.75%, as was widely expected. The median forecast for real activity was lifted to 2.7% for 2018 and to 2.4% for 2019 (unchanged for 2020 and the long run), following upgrades of similar magnitude in December 2017. Consistent with the higher near-term growth estimate, median unemployment forecasts for 2018-20 fell further below the estimate of the long-run natural rate of unemployment, compared to December’s Summary of Economic Projections (SEP).”

“The median forecast for core personal consumption expenditure (PCE) moved a touch above the Fed’s 2% objective in 2019 and 2020, indicating that the Committee still believes in the relevance of the Philips curve relationship, even if in an attenuated form, and is willing to tolerate a temporary and modest core inflation overshoot.”

“Finally, the FFTR forecasts (or ‘dot plot’) became more hawkish overall – not enough to definitively shift the median FFTR projection for 2018, but enough to imply eight cumulative hikes in this cycle from just under seven in December’s dot plot. This is now only one dot away from three more hikes this year. The June SEP is likely to reflect four hikes in 2018 if real activity holds up, in our view.”

“We had expected the Committee’s tone to turn more hawkish at this meeting, but to lean more on verbal communication (via the statement and subsequent press conference) than on SEP forecast upgrades. This would have been the likely path had Janet Yellen been chair. In the event, rather than engaging in extended verbal communication, the chair remained fairly brief in the press conference, letting the SEP do the talking.”