MUFG on FOMC - FJElite
The US dollar has held on to most of last night’s gains following the FOMC decision to hike the fed funds rate by 25bps and provide communications that certainly suggest the scope for further action ahead. The headline grabbing comment from Fed Chair Warsh that the hike had “removed a dose of accommodation" was the clearest signal that a certain level of accommodation still exists and therefore more action will be required. That was also underlined by the fact that the YoY core CPI rate only hits the 2% target in 2029. Warsh did play these forecasts down when asked about them in the press conference emphasising these were the product of all nineteen FOMC members - suggesting possibly that he would be willing to take more action and faster in order to bring inflation down more quickly.
In the same light, we possibly shouldn't read too much into the median dot levels and those levels could and very likely will change as developments unfold moving forward. The 4.125% median dot for 2026 and 2027 points to another hike and then no cuts until 2028 when the median dot drops by just 25bps and then by another 25bps in 2029 to 3.625%. That’s a very cautious removal of the two hikes pencilled in for this year that certainly implies a faster reduction in core CPI will require more than just one additional hike. The long-run fed funds rate was tweaked higher by 12.5bps to 3.25% and the GDP and unemployment rate projections certainly painted a rosy picture of the outlook for the economy.
