The Fed’s new forecasts: hawkish or dovish?

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The dots have come down, but only marginally.

The Federal Reserve’s closely scrutinised dots — the projections of individual policymakers on the US central bank’s rate setting committee — were lowered, as expected, on Wednesday, US capital markets correspondent Eric Platt reports.

While the median of the dots in 2016 remained unchanged at 1.375 per cent, the median projection for 2017 slipped to 2.375 per cent from 2.625 per cent, and to 3.25 per cent from 3.375 per cent for 2018. The median forecast for the longer run were left unchanged at 3.5 per cent.

Nonetheless, with roughly four rate hikes priced in for 2016, some strategists and economists have characterised the Fed’s rate trajectory as “hawkish”. In a survey ahead of Wednesday’s decision, more than two thirds of economists were expecting three or fewer rate increases next year.

Rob Carnell, an economist with ING Bank, said

With no change in the 2016 projection, Fed Chair, Yellen, now has an uphill struggle to make the case for this to be considered “dovish”.

Marc Chandler, a strategist with Brown Brothers Harriman, added:

The Federal Reserve delivered a hawkish hike. The dot plot reflects expectations for four rate hikes in 2016. There were no dissents.This is important. It underscores the decisiveness of the decision.There have been three voting Fed members that were thought to be likely dissents.

Krishna Guha, a central bank watcher at Evercore ISI, characterised the statement as dovish, but said:

FOMC participants continue to indicate in the SEP that they expect to raise rates materially faster and further than the market has discounted to date. There was very little downward movement in the dots, contrary to market expectations and our own base case.

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