Fed increases rates by 25 bps as expected
Dot-plot sees 3 hikes this year (2 more) but dots moved up, 4 hikes a possibility
Fed sees higher growth, slightly higher inflation and higher rates in 2019, 2020
US dollar gains in the first reaction but moves are limited
The Fed did not shock the markets - a hike that was expected was eventually delivered. Overall the message from the Fed is constructive - growth forecasts was lifted for this year and next, probably reflecting fiscal stimulus. However, longer term growth forecasts were broadly unchanged, reflecting temporary nature of the current impuls. Meanwhile the Fed increased projections of inflation to slightly above the target starting from 2019, signalling a need for monetary tightening.
Economic projections moved up in general. 2018 median rate assumption remained unchanged - probably the reason behind a mixed reaction. However, distribution of "the dots" for 2018 improved a lot as well.
The dot-chart is mildly hawkish. Median rate projections for 2019 and 2020 increased significantly. For 2018 the median still sees 3 hikes (2 more after a hike in March) but distribution of dots is much higher and a shift to 4 hikes is a clear possibility if data flows remains good. Estimate of long run rate has just moved up with the median now at 2.875%, up from 2.75%, perhaps slightly less than anticipated. So despite the lift up in dots the message is not overwhelmingly USD positive.
The statement is also quite neutral, stressing that the Fed "will watch inflation developments closely" could be taken as too much cautiousness.
Not hawkish enough? After the first downward reaction the EURUSD is spiking upwards.
EURUSD saw a downward impulse seconds after the release but sellers were unable to press further despite generally downward short-term direction. We will see if Powell’s first post-meeting conference could reinforce the hawkish tilt that material presented enough to spark some larger USD gains.