FXStreet (Barcelona) – Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, reviews the FOMC Meeting and Yellen’s conference and further notes that US data ahead will make the USD downturn as short-lived.
Key Quotes
“FOMC participants’ updated projections for the Fed funds rate were lowered signalling a more gradual pace of tightening. The median year-end projections for 2016 and 2017 were both lowered by 0.25 percentage point to 1.625% and 2.875% respectively.”
“In contrast the median projections for the Fed funds rate for 2015 and for the longer run remained unchanged at 0.625% and 3.75% respectively. However seven FOMC participants now see the Fed funds rate at 0.375% or lower at the end of this year compared to three participants in March increasing the likelihood that the Fed will raise rates only once this year.”
“So while the Fed has still left the door open to begin raising rates as early as in September, it is becoming more likely that they may wait until later this year.”
“The more cautious outlook for Fed policy in part reflected the downgrade to their growth outlook for this year with the US economy now expected to expand more modestly by 1.8% to 2.0%. However, the Fed remains optimistic that the US economy will still expand more solidly in the coming years by 2.4 to 2.7% in 2016 and 2.1% to 2.5% in 2017.”
“Their projection for the average unemployment rate in the Q4 2015 was also revised modestly higher to between 5.2% and 5.3%.”
“Overall there were only minor changes to the Fed’s economic outlook which highlights that the Fed has perhaps become overly cautious over the likely pace of tightening ahead. The updated FOMC statement did acknowledge the recent improvement in the US economy which is now described as expanding moderately.”
“In the accompanying press conference Fed Chair Yellen reiterated that the outlook for Fed policy remains data dependent with the timing of lift off decided meeting by meeting. She judged that some downward pressure on inflation has abated although it is expected to remain quite low this year. She stated as well that the Fed would like to see more decisive evidence of progress towards their goals before raising rates. She acknowledged the recent tentative pick up in wage growth from low levels. She also highlighted that the Fed is closely monitoring developments regarding Greece which could have some (modest) negative spill-over impact on the US if Greece fails to reach an agreement with its creditors.”
“The initial weakening of US dollar following last night’s FOMC meeting is understandable but we remain of the view that it will likely prove short-lived. We expect the US dollar to regain upward momentum in the second half of this year as the Fed begins to raise rates well ahead of other major central banks. The incoming economic data and events will ultimately dictate the pace of future rate hikes.”
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