Fed: Tightening isn’t done yet - RBC CM

According to Josh Nye, Senior Economist, at RBC Capital Markets, the Federal Reserve delivered a dovish interest rate hike but he warns the tightening isn’t done yet.

Key Quotes: 

“The updated policy statement and projections certainly leaned dovish but hardly validated market pessimism. There was some speculation that the FOMC might drop their forward guidance in favour of data dependence, but they still indicated “some” further rate increases should be expected.”

“The FOMC trimmed their median GDP growth forecast for 2019 (to 2.3% from 2.5% previously) due in part to recent tightening in financial conditions. Core inflation is expected to be steady at 2%, even with unemployment remaining well below its longer run rate (which was revised down slightly). 

“The upshot is a slightly shallower tightening path—the dot plot median now points to two rate hikes in 2019 (previously three) and just one increase in 2020. The longer run ‘neutral’ rate was trimmed to 2.75% from 3%.”

“A more dovish set of projections challenges our forecast for once-a-quarter rate increases to continue next year.