March US FOMC - Analysts react
By Alexander Bueso
Date: Wednesday 21 Mar 2018
(ShareCast News) - "We have long anticipated that the Fed would need to raise rates more rapidly over the next few years, a view now shared by Fed officials and other forecasters. What stands out now are our medium-term bearish views. Once the fiscal boost fades and job growth slows, we expect economic growth will fall below trend, prompting the Fed to begin cutting rates again in 2020, a strongly non-consensus call." - Michael Pearce, Capital Economics
"We share the Fed's positive outlook for the economy, the labor market and inflation for the next several quarters. The main reason is that two massive fiscal stimulus programs allow the economy to grow above its potential even as it has reached full employment. Against this fundamental outlook we also think that the Fed will raise its target rate by three (our current baseline) to four times in 2018. Looking at 2019, however, we are clearly more concerned than the Fed. As the impact of the stimuli fades, growth rates should begin to slow perceptibly around the middle of the year, before slowing further into 2020. As a result, we anticipate that the Fed will only be able to add one additional hike in 2019, rather than the three that the FOMC is currently signaling." - Harm Bandholz, UniCredit Bank
"The median dot for 2018 has remained unchanged at three hikes, but the mean dot did increase. Only a one-dot move in June is now needed for four 2018 hikes. The changes to the economic projections were objectively speaking relatively hawkish, but they did fell short of the ramped-up market expectations going into the meeting. The press conference lacked a certain degree of depth and color." - Stefan Koopman, Rabobank
"Even though the median funds rate for 2018 did not rise, the average funds rate did as seven members now expect more than three rate hikes this year versus four in December. The average funds rate rose about 20bp in 2018 and 2019 and by 30bp in 2020, a touch higher than what we had anticipated for 2019-2020. The median funds rate for the long-run was also revised higher, by 2.9% from 2.8% previously, as against our expectation of no change." - Michael Gapen and Pooja Sriram at Barclays Research
"What do these FOMC forecasts suggest? The Fed is acknowledging momentum in the economy will be sustained and that it will be associated with moderate inflation pressures; that it takes seriously its 2% inflation target-and views the need to be "symmetrical" around its target-but nevertheless perceives that it will be appropriate for the Fed to raise rates somewhat more than it had previously projected. In this regard, it is noteworthy that the FOMC's midpoint estimate for the Fed funds rate at year-end 2020 is 3.4%, 0.5 percentage points above its estimate of the appropriate longer-run policy rate." - Mickey Levy, Roiana Reid at Berenberg Capital Markets
"The Fed now expects the target range to rise 50bp above the natural rate of interest (the rate where monetary policy neither expansionary nor contractionary) by year-end 2020. The reason for the move up in dots is mainly the more expansionary fiscal policy under Trump. We still believe the overall policy mix is going to be more expansionary, as the Fed seems reluctant to offset more expansionary fiscal policy 1:1." - Danske Bank
"Our view is that the FOMC wanted to sound hawkish and tried to do so in the least disruptive manner possible. The 2018 dots did not change, although they gave themselves optionality in that it would take only one voter moving from three hikes to four in order to push the median higher. While the FOMC reports the median results of its votes, it is worth noting that the average for 2018 was 14 bps higher versus the December meeting." - Marvin Loh, BNY Mellon
"Fed officials lifted their GDP forecasts and lowered their unemployment rate projections over the next several years due in large part to increased fiscal stimulus (changes to the forecasts are highlighted in yellow in table 1). However, compared to our forecasts (OE), the impact of the stimulus is conservative and slow to unfold. Notably, the Fed did not increase the long-run potential GDP forecast, reflecting uncertainty and likely even some scepticism about how large of an impact the stimulus will have on the supply-side of the economy." - Kathy Bostjancic, Oxford Economics
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