Fed still expected to hike three times in 2017 – UOB

FX Strategists at UOB Group assessed the recent outcome of the FOMC meeting.

Key Quotes

“The FOMC, in a widely expected September decision, announced that the Fed will implement its balance sheet reduction (BSR) in October 2017 and it also decided to maintain its Fed Funds Target Rate (FFTR) at the range 1.00-1.25%, unchanged since the June 2017 FOMC”.

“The Fed Reserve remained optimistic about US growth and employment situation and while it acknowledged the recent storms will affect near-term economic activity, the weather disruption is unlikely to alter the economy’s course in the medium term”.

“Except for a downtick in 2017 core PCE inflation forecast, the Fed Reserve remains confident that inflation will return back to the 2% target as FOMC Chair Yellen sees “these effects should be transitory” and “are not of great concern from a policy perspective because their effects fade away.”

“Markets viewed the September FOMC as more hawkish than expected because the September dotplot chart was left largely intact (from June FOMC) for 2017 and 2018 – The FFTR median forecast was unchanged at 1.4% in 2017 (implying one more hike in 4Q 2017) and unchanged at 2.1% in 2018 as well (implying 3 more hikes in 2018)”.

“We still believe our moderately hawkish outlook for the Fed rate trajectory in 2017 remains intact and we maintain the forecast of 3 Fed rate hikes this year (including the March & the June hike). While our base case remains for a December FOMC rate hike, we are not ruling out an earlier move in November and we believe that we will get more clarity on a potential “pre-emptive” November rate hike by mid-October”.