FOMC reaction: confidence with crossed fingers
Simon Ward
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The hike is effectively 20 rather than 25 basis points because market rates will track the increase in the overnight reverse repo rate from 0.05% to 0.25%. The Committee signalled confidence in the economic outlook by voting unanimously while maintaining median forecasts of a 1 percentage point rise in rates during 2016 and a longer-run "neutral" rate of 3.5%. The doves, however, obtained an important concession in the form of a new sentence in the statement linking further action to actual progress in lifting (core) inflation, raising the bar for an early follow-up move. The reduction in near-term Fed uncertainty should allow markets to refocus on a reasonably favourable global economic backdrop, with moderate growth proceeding across the developed economies and signs of reacceleration in China.
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