The Federal Reserve did not surprise. It did not change interest rates while announcing that its plan to begin reducing its balance sheet will begin next month. Through the economic projections, the FOMC continued to signal that a hike in December is still appropriate. In fact, the dot plots show 11 of 16 of the Fed members think one more hike this year will be appropriate. Four say steady and one says that two hikes this year are appropriate. Remember these are not forecasts.
The dot plots suggest that it will take a year longer to reach the Fed funds to reach their neutral rate, which it lowered to 2.75% from 3.0%. However, the Fed did not only leave one more hike this year on the table, but it also kept the median anticipation that three hikes may be appropriate next year.
The market increased the odds of a December rate hike to over 60%.
Source: Bloomberg Pro Terminal
Trader Bozhidar Arabadzhiev
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