The Euro moves lower after the FOMC Signals 3 Rate Cuts in 2017
by, David Frank, Economist

Points to consider with this FOMC article:

  • The Federal Open Market Committee (FOMC) raised its benchmark interest rate 25 basis points (BPS) to a range of 0.50 to 0.75 percent.
  • Federal Reserve (Fed) officials keep the terminal rate around 2.75 to three percent.

Just a short while ago, the Federal Open Market Committee (FOMC), the monetary policy arm of the United States Federal Reserve Board (Fed) followed a similar rate hake path to 2015 when Janet Yellen and Co. voted unanimously to raise the Federal Funds rate by 25 basis points in the last policy meeting of that year. The Dollar saw a slight increase, especially against the euro.

More importantly, as the markets had priced this rate hike in and it was of no surprise, the Federal Reserve pushed up its forward guidance, or rate dot-plot. The Fed will now seek to raise the benchmark Fed Funds rate three times in the New Year (2017). Their longer-run dot-plot was kept the same projecting a terminal rate of around 2.75 percent to three percent. The policy makers of the central bank did not make any meaningful changes to their inflation or economic growth forecasts. The gross domestic product (GDP) numbers for 2017 were marginally revised upward to reflect an economic rate of growth of 2.1 percent. The September growth projection was at a two percent expansion.

Despite the small pickup with the forward guidance, the Fed members warned of “market-based measures of inflation compensation have moved up considerably but still are low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.” This means the Federal Reserve is likely to revert back to a more wait-and-see approach at the next monetary policy announcement to be held on February 1. The following new Fed voting members will be slated to vote, at the FOMC, at that time in 2017: Chicago Fed President Charles Evans, Philadelphia Fed President Patrick Harker, Dallas Fed President Robert Kaplanand Minneapolis Fed President Neel Kashkari.

At 1940 GMT time, after the news of the FOMC vote crossed the wires, the Dow Jones was down a little over 65 points and the S& 500 was down about eight points in a choppy trading session. The US Dollar was trading up against the euro which was trading at 1.0582.

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