Central Banks

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The Federal Reserve hiked interest rates a quarter percent, the third time with Jerome Powell as Chairman. Markets had priced in a 90% chance of 25 bp hike.

 Fed Boardroom

 

fed chair powellHighlighights: Jerome Powell Fed Chair

  • Fed raises the Fed Funds target range to 1.75-2.00% 
  • Raises range by 0.25% - 4 rate hikes in 2018.
  • Raises IOER rate by 20 basis points to 1.95% effective June 14
  • Raises discount rate by 25 basis points to 2.5% effective June 14
  • Longer term inflation gauges little changed spending picked up
  • investment continue to grow strongly
  • Cap on treasuries rolloff to rise to $24 billion and $16 billion for MBS.
  • Cap is as planned 
  • Projection is for 2.4% from 2.1% last
  • Sees 3 hikes es in 2019 to 3.1% from 2.9% last
  • Raised GDP to 2.8% from 2.7% last
  • Lowered Unemployment to 3.6% from 3.8% last
  • Sees core PCE at end of 2018 at 2.0% from 1.9%.
  • PCE inflation at 2.1% from 1.9%

 

June 2018 FOMC statement

Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.

On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.

Risks to the economic outlook appear roughly balanced. In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.

This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.

The federal funds futures market hasd priced in an almost 90% chance of a 25bp rate hike at the 13 June meeting. 

From the TradersCommunity Research Desk

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