- Federal Reserve keeps rates unchanged, as expected
- US equity market moves higher on updated SEP
- Rate projections through the dot-plot shift forward
- Traders look to Fed Chair Powell’s press conference
The Dow Jones Industrial Average[1] (DJIA), along with other benchmark equity indexes, tracked higher after the Federal Reserve kept interest rates unchanged on Wednesday. US stock futures caught a bid overnight after China’s Evergrande Group announced that it would make coupon payments this week. The potential credit crisis was a major risk factor going into today’s FOMC[2] decision.
A step towards tapering balance sheet purchases materialized in today’s policy statement, with the language "may soon be warranted." Federal Reserve Chair Jerome Powell has made clear that clear and advance notice will be given before any taper announcement. Mr. Powell may provide further guidance in his press conference due to kick off at 18:30 GMT. Since June 2020, the Federal Reserve has added $120 billion a month in mortgage-backed securities and Treasuries. Tapering balance sheet growth is seen as a prelude to hiking interest rates.
The new Summary of Economic Projections (SEP) – which lays out members’ economic and rate projections – shows a more optimistic outlook relative to June’s SEP. This includes the dot-plot, which includes fresh projections for 2024. Two members shifted their rate increase projections forward, bringing the expectations for a rate hike in 2022 to nine members from seven. The median projection for a hike remains set for 2023, however. The 2022 PCE inflation forecast lifted from 2.1% to 2.2%
Source: federalreserve.gov
--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater[3]on Twitter
