FOMC Statement: Our view
This week the Fed surprised markets with a very dovish message, signalling policy could be on hold for an extended period. The statement suggested no predisposition as to the direction of the next move in interest rates.
In addition, the Fed indicated that it would be willing to adjust the pace of balance sheet normalization if warranted. With respect to our call for both interest rates (two hikes in 2019) and balance sheet run-off (extending until 2020 H1), the risks are clearly skewed to a more dovish outcome.
Our main takeaway is that the Fed appears extremely comfortable with its current policy stance. Last December, the median "dot" for the year-end funds rate implied two rate hikes in 2019 (in line with our own long-held forecast). However, today's changes to the FOMC statement and the tone of the Fed Chair's press conference suggest additional rate hikes this year may no longer be the base case.
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31st January 2019
US Chief Economist
Senior US Economist