Expectations were for a snoozefest from the Fed today, reassuring market participants that all is well, inflation is well managed and there will be two more rate hikes in 2018 (there was a 1% chance of hike today, a 80% chance of a hike in Sept, and 66% chance of Dec hike in addition). Despite The Atlanta Fed's model now forecasting 4.9% for Q3, The Fed was likely to play down the 4.1% growth in Q2 with the word "solid" critical to watch, and how much will The Fed continue to play down the collapsing yield curve.
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The Fed tilted notably hawkish - choosing (as expected) unanimously to keep rates unchanged, confirming "gradual rate hikes" but upgraded its view of the economy from "solid" to "strong."
Here are the Key Takeaways from the latest Fed decision, according to Bloomberg:
Economic activity is "rising at a strong rate,'' an upgrade from prior wording of "solid rate''
Most of the minor wording changes are mark-to-market in the first paragraph's economic assessment
Job gains "have been strong,'' and household spending and business fixed investment "have grown strongly''
Unemployment has "stayed low" rather than "declined"
Both headline and core inflation remained "near 2 percent''
Household spending has "grown strongly" rather than "picked up"
"Further gradual increases'' repeated as expected policy path
Risks to the outlook still "appear roughly balanced''
Decision unanimous, with George voting as an alternate for San Francisco vacancy
One surprising omission was the Fed's lack of reference to the recent slowdown in the housing sector, which some Fed watchers were expecting would be inserted; the result is an even more hawkish reading of the Fed's upbeat assessment of the economy.
That said, the Fed has a lot of work to do to convince markets that its rate-trajectory is going to happen. The market is slightly unconvinced for 2018, completely non-believing for 2019 and see rate cuts more likely in 2020...
Since The Fed hiked rates in June, Gold has been monkeyhammered, the dollar is modestly higher with the Dow and Long Bond approximately unch...
With 10Y yields having round-tripped back to the same level as at the June hike...
Full redline comparison with the June statement - which shows barely any changes - below: