The Fed delivered on that score, too.
She added that the balance sheet normalization could be put into effect "relatively soon". The combination of both should compel a hawkish re-pricing in the Fed outlook.
Credit Suisse Research: With the market 90% priced for a 25bp rate hike, we do not expect much Dollars upside from such an outcome alone.
In the policy statement, the FOMC highlighted a strong labor market and low unemployment rate and promised to monitor. Indeed, the risk is that the Fed could hint at an earlier balance sheet exit than the market is now expecting.
Fed officials have concluded that the economy, now entering its ninth year of expansion, no longer needs the ultra-low borrowing rates they supplied beginning in the Great Recession. More important for U.S. dollar performance will be the Fed's updated signal over the pace of future tightening.
In lifting its benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent and forecasting one more hike this year, the Fed seemed to largely brush off a recent run of mixed economic data.
"The FOMC met expectations and delivered a dovish hike".
"Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the committee's 2 percent objective over the medium term", the statement said.
Fed raises rates and outlines balance sheet reduction plan
They are just catching up with reality: The jobless rate has dropped with unexpected speed - to a 16-year-low 4.3 percent in May. Since the 2008 financial crisis, the Federal Reserve has lowered the interest rate to encourage borrowing and risk-taking.
The targets for appropriate federal funds rates by Federal Open Market Committee participants are plotted in a chart that has come to be known as the "dot plot". In that sense, the staff projections and the discussion surrounding balance sheet normalization will be the focus. And hiring in the United States remains solid if slowing, with employment at a 16-year-low of 4.3 percent - even below the level that the Fed associates with full employment.
But the rate increase was already priced into most stocks. More important is Fed Yellen's conference, where we should get a bit more detail on balance sheet run-off. Our economists view the caps as a flexible tapering.
The Fed raised the short-term rate it controls to a range of 1 percent to 1.25 percent, the second hike this year and the third in six months. Here are the highlights from June's Federal Reserve meeting, and what this rate hike could mean to you.
In addition to recent weakness in inflation and payroll data, output growth has lost momentum. We expect the Fed to pause on hiking in September to begin balance sheet drawdown. Such a strategy will see a reduction in the United States central bank's quantitative easing programme.
STOCKS: Stocks moved slightly higher then flattened.
The decision was expected after months of hinting.
Fed policymakers stuck with forecasts pointing to further rate increases in the coming years, including a further quarter-point increase by the end of 2017.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; and Jerome H. Powell.
Comments