The FOMC has just increased the Fed Funds target range by 25 basis points for a third time since December 2015 (from the previous 0.50%/0.75%) to now sit at 0.75%/1.00%. That much was already all but guaranteed and priced in following such a significant and co-ordinated attempt from FOMC members in recent weeks to prepare the market. The real interest and market moving impact has come in the FOMC projections and the dot plots. From the market reaction, this was a slightly dovish FOMC and seems to have been more dovish than had been priced into the market.
In the run up to the March announcement, the market had been pricing for three hikes in 2017. Aside from the March hike, there was a further 25 basis point hike expected in June (61% probability according to CME Group FedWatch) and also in December by which time the expectation is that the target range will sit at 1.25%/1.50% (with a 63% probability). However, a June hike is now very much in the balance around 49% This FOMC statement and set of projections will do little to change that view of three hikes this year.
The impact going forward could take the wind out of the dollar rally at least for the near term. These ranges that have been building recently are liekly to continue at least, or perhaps drive a corrective move against the dollar. Looking further out, perhaps this now means the market will take a breather, and look towards perhaps Donald Trump and his “phenomenal” tax plan to drive the next breakout.
Will Yellen change everything with her press conference? The notorious dove is unlikely to be hawkish, so these trends are likely to be well set.
The announcement has been dollar negative, whilst being gold and equities positive. Bond yields have dropped sharply, but it interesting to see the 2 year yield hitting the breakout support at 1.300% bang on.