Fed decision - Analysts react

"As our Fed watcher, Philip Marey, suggested in his take on the decision (see attached), Fed Chair Janet Yellen downplayed the size of the dot plot adjustment, calling it ‘very tiny’ whilst suggesting that only ‘some’ participants had changed their rate projections. Philip points out that only two dots at the median level in 2017 being shifted upwards would have been sufficient to change the median number of hikes from 2 to 3 between September and December. As such, the upward shift in the median may indeed be a less significant adjustment in the FOMC’s views than it would appear." - Rabobank

"Fed Chair Yellen's press conference offered the final few interesting snippets. She made special mention in particular to the change in the dots being "really very tiny" which was seen as her way of softening the hawkishness of them. She also added that she never said that she favoured "running a high pressure" economy and wanted to make it clear that she has "not recommended running a hot economy as some sort of experiment". A reminder that back in October Yellen had said at a speech in Boston that there might be benefits to temporarily letting the economy run hot with robust aggregate demand and a tight labour market to reverse adverse supply side effects. Meanwhile, when asked about fiscal stimulus Yellen said that "fiscal policy is not obviously needed to provide stimulus to help us get back to full employment". When asked about the Fed's response to fiscal, DB's Peter Hooper highlighted that she did not explicitly say they would raise rates faster, but rather left that implicit in her response." - Deutsche Bank

"The upward shift in the median projection was not the result of one or two members of the Committee changing their assessment of the appropriate rate. It appears at least half of the members lifted their projection for 2017. For 2018 and 2019 it appears that there was a general shift up by more than half the Committee members. [...]Though the median projection for the appropriate federal funds rate moved up, there was little change in the projections for economic growth or inflation. GDP growth projections were nudged up a tenth of a percent for 2017 and 2019. But this seems too low if a substantial fiscal stimulus is expected by at least some members of the Committee. It is notable that the top end of the range of GDP forecasts did not increase." - HSBC

"We stick to our view that the Fed hikes twice next year (June and December) but risk is now skewed towards three hikes. It is still important to remember that the Fed turns more dovish next year due to shifting voting rights. The number (and the timing) of Fed hikes now depends on what strategy Donald Trump pursues with respect to implementing his economic plan, as the Fed will respond to more expansionary fiscal policy by raising rates faster." - Danske Bank

“It has been a long time coming, but all signs are pointing to The Fed raising rates and they are unequivocally right to do so. The last time rates were hiked a year ago – only the second raise since 2006 – the consensus was that 2016 would be the year of multiple rises, but no one could have foreseen the domestic and global upheaval that took place. Yet now, even without the prospect of a strong fiscal expansion in a Trump presidency, the US economy is showing signs of sustained strength. Unemployment remains low at 4.6%, and the impact of wage pressure is beginning to feed into inflation. If energy prices stay at the current high levels, that will also contribute to sustained inflationary performance. For the first time in eight years of economic underperformance, we are starting to see real-growth emerging from the United States.” - Invstr