Fed Hikes Rates: Redline And Full Highlights

Right, so the Fed didn’t get the most favorable setup for a hike.

This morning’s CPI and retail sales data were disastrous, missing across the board. Core CPI printed just 1.7% Y/Y or, the lowest since May 2015:

That only added to the debate about whether the FOMC should focus on inflation or the ostensibly overheating labor market when deciding how fast to normalize policy. Zeroing in on inflation as an excuse to hold off on tightening risks running the economy hot and falling behind the curve, while hiking too aggressively to stay ahead of the proverbial game risks exacerbating the deflationary impulse that’s readily apparent in the data.

And so, everyone expected today’s hike to be as dovish as absolutely possible. In fact, more than a few commentators warned of an imminent disaster if there’s even a hint of hawkishness. Here’s what we got:

FED MAINTAINS BALANCE SHEET REINVESTMENT, LAYS OUT UNWIND PLAN
FED RAISES TARGET RANGE FOR FEDERAL FUNDS RATE TO 1%-1.25%
FED SAYS IT EXPECTS TO START SHRINKING BALANCE SHEET THIS YEAR
FED SAYS IT’S `MONITORING INFLATION DEVELOPMENTS CLOSELY‘
FED RAISES RATES, MAINTAINS FORECAST FOR ONE MORE HIKE IN 2017

In the aftermath, Fed fund futures continued to lower the odds of a September hike apparently in reaction to the bit about inflation staying “somewhat below 2%”. Odds of December rate hike currently ~38%, September 12%.

More details:

Fed: median federal funds est. 1.4% end-2017, unch vs march
Fed: median federal funds est. 2.1% end-2018, unch vs march
Fed: median federal funds est. 2.9% end-2019 vs 3% in march
Fed median 2017 core pce inflation 1.7% vs 1.9% march est.
Fed says it’s ‘monitoring inflation developments closely’
Fed raises target range for federal funds rate to 1%-1.25%
Fed: labor mkt continued to strengthen, job gains moderated
Fed: economic activity rising moderately, spending picked up
Fed says balance-sheet rolloff caps would start at $10b/month

Fed prior median longer-run Federal funds rate 3.0%

Longer-run median unemployment rate 4.6% compares to previous forecast of 4.7% at March 15, 2017 meeting
- 2017 median jobless rate at 4.3% vs 4.5%
- 2018 median jobless rate at 4.2% vs 4.5%
- 2019 median jobless rate at 4.2% vs 4.5%
Longer-run real GDP median projection of 1.8% compares to previous forecast of 1.8%
- 2017 median GDP growth 2.2% vs 2.1%
- 2018 median GDP growth 2.1% vs 2.1%
- 2019 median GDP growth 1.9% vs 1.9%
Longer run PCE inflation median at 2.0% compares to previous forecast of 2.0%
- 2017 median PCE inflation 1.6% vs 1.9%
- 2018 median PCE inflation 2.0% vs 2.0%
- 2019 median PCE inflation 2.0% vs 2.0%
2017 median core PCE inflation 1.7% vs 1.9%
2018 median core PCE inflation 2.0% vs 2.0%
2019 median core PCE inflation 2.0% vs 2.0%
Longer run Fed funds median at 3.0% compares to previous forecast of 3.0%
- 2017 median Fed funds 1.4% vs 1.4%
- 2018 median Fed funds 2.1% vs 2.1%
- 2019 median Fed funds 2.9% vs 3.0%