What to retain from the Fed meeting?
- Fed raised interest rates by 25bp to 2%-2.25% for the third time in 2018 as expected by the markets.
- The Fed dropped the word “Accommodative” from the policy statement.
- Tariffs: no impact on the aggregate performance of the US economy at this stage. On the downside risk, Tariffs could drive up materials costs and cause higher inflation.
- FOMC members showed stronger confidence in short term growth prospects and higher uncertainty around 2020-2021. Median forecasts for interest rates pointed to one more rise this year, followed by three increases in 2019 and another in 2020. No hike expected in 2021.
Many debates to assess when the monetary policy of the Fed will become restrictive for the US economy. It should be noted that funding conditions have eased despite the recent increase in Fed Funds. Investor appetite and its confidence in the US economy are also key elements in the equation.