The Fed have raised rates by 25bp to 1.5%, as widely expected, but left its interest rate outlook for the coming years unchanged given that inflation is unable to rise, even as policymakers project a short-term acceleration in U.S. economic growth. While employment is expected to remain robust, projected to fall to 3.9% in 2018, inflation is projected to remain below the Fed’s 2% goal for another year, causing enough concern for the Fed to see no reason to accelerate the expected pace of rate hikes.
In her final statement, Janet Yellen noted that future changes in tax policy will likely provide some lift in economic growth although the magnitude and timing of this remain uncertain. She also remained confident of a robust labor market but noted that inflation remain soft while suggesting that it will reach the 2% target over time and that gradual rate hikes will be warranted.
Earlier in the US session, the dollar had been under pressure after the Q3 CPI showed sluggish inflation, adding to concerns the Fed may be less able to execute multiple rate increases in 2018. Excluding food and energy, consumer prices ticked up 0.1%in November, with the annual increase in the Core CPI slowing to 1.7% in November from 1.8% in October. Headline CPI rose 0.4% mm, 2.2% yy in November, in line with consensus.
Late in the day, the UK Government has lost a vote on the Brexit blueprint, giving lawmakers the final say on Brexit. Cable was largely unmoved.
The overall outcome has been a swift selloff of the US$ after Janet Yellen’s statement while stocks at present are largely unmoved at all time highs. The metals have moved higher, in line with the $ weakness, while WTI remains heavy following the EIA Crude Oil Stocks Weekly Change showing that crude stockpiles fell for the second straight week but failed to offset a larger-than-expected build in gasoline supplies.
It is going to be a bid day for data on Thursday starting with the Aud$ where the Australian Consumer Inflation Expectation and Unemployment (exp +18K, 5.4%) will be in focus ahead of the China Retail Sales (exp 10.2%yy), Industrial Production (exp 6.0%yy) and Fixed Asset Investment (exp 7.2%yy). Not to be left out, Japan has the Oct Industrial Production/Capacity Utilisation and the weekly Foreign Bond/Stocks Investment. Europe then warms up with the flash Mfg PMIs and the UK Retail Sales (exp 0.4%mm, 0.3%yy), coming ahead of the SNB, BOE and ECB Interest Rate Decisions. Although no change is expected from any of them, the relative statements/press conferences will be closely watched. The US will be busy too, starting with the November Retail Sales (exp 0.3%), weekly Jobless Claims, Import/Export Index, Business Inventories and the flash Manufacturing/Services/Composite PMIs. Also note that the EIA Crude Oil Stocks Weekly Change will be released late in the day.
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