The Fed: More Hawkish, but What Did You Expect?

Written by: Dr. David Kelly

As forecast for the unemployment rate. It is worth noting, however, that the expected, the Federal Reserve raised its target for the federal funds rate to a range of 1.75%-2.00% today. Both the language in its statement and its economic projections were more hawkish than in its May and March meetings respectively. However, markets should have fully anticipated this based on incoming data. In particular:

In its statement, the Federal Open Market Committee (FOMC) upgraded its assessment of both economic growth and the jobs market. This reflects the reality that incoming data are pointing to 2nd quarter real GDP growth of close to 4% and that the unemployment rate has fallen to its lowest level since December 1969.

In its economic projections, the FOMC bowed to reality, slightly raising its economic growth and inflation forecasts and cutting its e Fed maintained its forecast of long-term sustainable growth of 1.8% and that none of the 15 Fed governors or regional bank presidents projected a long-term real GDP growth rate outside of a range of 1.7% to 2.1%.

In its interest rate projections, the FOMC upgraded the anticipated number of future rate hikes from three to four in 2018 and maintained their March estimate for three rate hikes in 2019, reflecting a hawkish bias.

EXHIBIT 1: FOMC JUNE 2018 FORECASTS*

Source: Federal Reserve, J.P. Morgan Asset Management. Data as of June 13, 2018.
*Forecasts of 15 FOMC participations, median estimate.
** Green denotes an adjustment higher, red denotes an adjustment lower.

Related: A Tailwind From Taxes: 1Q18 Earnings Bulletin

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