FOMC Delivers "Dovish Hike," Lays Out Plans For Balance-Sheet Unwind

In the most well-telegraphed, ‘never in doubt, no matter how bad the economic data is’ FOMC Statement ever, The Fed hiked rates by 25bps and maintained its rate-hike trajectory forecast, shrugging off the collapse in economic data (including weak inflation). The market was anticipating a so-called ‘dovish hike’ and The Fed delivered by saying it is “monitoring inflation developments closely” and also offered more detailed plans of the balance sheet unwind (beginning this year).

Interesting hedgeing against the chance of a “no rate hike” was “aggressive” today in Fed Funds Futures.

Here are the headlines.

*FED RAISES RATES, MAINTAINS FORECAST FOR ONE MORE HIKE IN 2017

*FED SAYS IT’S `MONITORING INFLATION DEVELOPMENTS CLOSELY’

*FED SAYS KASHKARI DISSENTS IN FAVOR OF KEEPING RATES ON HOLD

*FED SAYS IT EXPECTS TO START SHRINKING BALANCE SHEET THIS YEAR

*FED MAINTAINS BALANCE SHEET REINVESTMENT, LAYS OUT UNWIND PLAN

And the highlights, courtesy of Bloomberg:

RATES: Target range for fed funds rate was raised to 1%-1.25% from 0.75%-1%; decision included dissent from Minneapolis Fed’s Neel Kashkari; rate increase is third hike since December 2016

RATE OUTLOOK: Keeps reference to gradual pace of future rate increases, continues to say fed funds rates is likely to remain below expected long-run levels “for some time” and actual path of rate will depend on outlook

INFLATION: Says inflation on 12-month basis will stabilize around 2% over medium term, but is expected to stay somewhat below 2% in near term; said inflation excluding energy and food is running somewhat below 2%; Still says that FOMC will monitor inflation developments relative to its “symmetric goal”

ECONOMY: Fed now says economic activity has been rising moderately this year vs prior assessment that it has slowed; continues to say U.S. labor market has continued to strengthen and now calls solid job gains as having “moderated”

REINVESTMENT POLICY: Fed deletes prior language that said it will keep existing reinvestment policy in place until normalization of fed funds rate “is well under way”; also removes reference to FOMC’s holdings of longer-term securities staying “at sizable levels”

RISKS: Near-term risks to outlook still appear “roughly balanced” as FOMC monitors inflation developments “closely”