September FOMC: Everything going according to plan – Nomura

Analysts at Nomura explain that the FOMC raised its target range for the federal funds rate by 25bp at the September meeting to 2.00-2.25% and signaled another likely rate increase at the upcoming meeting in December.

Key Quotes

“Overall, details of the meeting, including updated economic forecasts and press conference remarks from Chair Powell, were in line with expectations.

• In the post-meeting statement, the phrase “the stance of monetary policy remains accommodative…” was dropped.
• Moreover, the median of the longer-run projections for the federal funds rate inched up to 3.0% from 2.875%, possibly due to the addition of Vice Chair Clarida over the intermeeting period.”

“The rest of the Summary of Economic Projections (SEP) included slightly higher growth forecasts for 2018-19, possibly due to an upgrade in their assessment on the near-term impact from expansionary fiscal policy and a lower headline PCE inflation forecast in 2019, likely due to commodity price changes. The extended forecast through 2021 showed an unchanged median policy rate from 2020, at 3.375%, lower GDP growth and a slightly higher unemployment rate, suggesting the waning effect of fiscal policy is projected to lower growth and raise the unemployment rate in 2021.”

“In his press conference, Chair Powell largely defended the current trajectory as outlined in the SEP. His remarks stayed within the theme of navigating between “two shoals” (i.e., the risks of unnecessary tightening, cutting off the expansion, and not tightening enough, resulting in an overheating economy), similar to his Jackson Hole speech.”

“Today’s FOMC meeting did not alter our outlook for monetary policy. We continue to expect another rate hike in December followed by two more in 2019.”