The following is a quick take on today's FOMC statement as provided by CIBC World Markets.
2466 days and still counting, as the Fed kept the range for the funds rate steady at 0-0.25% today. However, there were hints that a gradual tightening cycle is close. Notably the members’ projections for interest rates still show a majority (13, albeit down from 15 last time) seeing the first hike as being appropriate in 2015. The median forecast for the end of this year is for one hike. Within the statement, the Fed seemed a little more upbeat on the domestic outlook, specifically the current trend in business investment. However, there was slightly greater concern regarding the international outlook.
They are still looking for “some” labor-market improvement and to be “reasonably confident” that inflation was on a path back to 2%. Once hikes do begin they may be even slower than had been forecasted before, with the median forecast for the end of 2016 and 2017 also 25bp lower than in the previous forecasts. What members think a “long-run” rate will be was also lowered to 3.5%, from 3.75%. One member – Lacker – dissented, instead preferring an immediate rate increase. All told, it looks as if rates are still set to start rising this year, however there’ll only likely be one move and we’ll await Yellen’s comments regarding whether this is more likely to occur in October or December.
Andrew Grantham CIBC WM Economics.