Fed: Pushing back against tightening financial conditions – ABN AMRO

Bill Diviney, senior economist at ABN AMRO, expects that the Fed will deliver just one rate hike in 2019 after the FOMC raised the target range of the federal funds rate by 25bp, to 2.25-2.50%, as was widely expected.

Key Quotes

“The Committee did three things: 1) it lowered its rate hike guidance for 2019 to two hikes from three hikes via the ‘dots’ projections; 2) it added the qualifier ‘some’ to its expectation of further rate increases, to suggest rate hikes are nearing an end; and 3) it lowered its estimate of the neutral rate, to 2.8% from 3.0%. The Committee also made a (widely expected) technical adjustment to the interest on excess reserves rate (IOER), raising it 20bp to 2.40% rather than by 25bp as it would normally do, in order to better anchor the fed funds rate more firmly within the target range.”

“In the press conference, Fed Chair Powell sounded upbeat on domestic economic conditions in the US, while also noting ‘cross-currents’, chiefly in the global economy, that are leading to increased uncertainty over the economic outlook.”

“All told, we continue to think the Fed will deliver just one rate hike in 2019 – likely at the March meeting – before a prolonged pause. The precise timing will depend not just on economic growth – which we expect to slow gradually – but also on whether the current period of market volatility persists into next year. Should market sentiment fail to stabilise, any additional tightening could get pushed back to June, or beyond.”