James Knightley, analyst at ING Bank explained that the Federal Reserve has left monetary policy unchanged, but there are some very interesting developments.
Key Quotes:
“Esther L George actually voted for an immediate 25bp hike. However, the hawkishness of this news was tempered by the Fed’s median projections showing a reduction in projections for rate hikes from four this year to just two. There were also cuts to the near-term growth (2.2% from 2.4%) and inflation forecasts (1.2 from 1.6% on headline PCE).
In terms of the accompanying statement the Fed remain upbeat on the economic situation, suggesting that activity continues to expand “at a moderate pace” and the jobs market is in good shape. However, they acknowledge that investment and net exports “have been soft” and they have a dovish take on the international backdrop – “global economic and financial developments continue to pose risks”. There is little change on their assessment of the inflation situation, which is expected to rise to 2% “in the medium term”.
Overall it suggests that the Fed remains cautiously upbeat on the prospects for the economy and expects to continue on the tightening path, but not until it is more confident that rate hikes are needed. The data flow will determine the path and in this regard our house view remains that there will be just one hike this year. Most probably in 3Q16.”
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