First Reaction: Fed Statement More Dovish, But Hikes Still Coming - CIBC

Rate hikes are coming, but the Fed is now closer to seeing eye to eye with markets in terms of how many, and how soon. In chopping their “dot” projection for hikes in half, to two this year, the Fed was taking note of the risks it still sees from “global financial developments” and their spillover into softness in business investment and net exports. Still, job gains are narrowing labour market slack, and despite tame wages, the Fed still sees inflation rising to 2% in the medium term. The Fed is still data dependent on the timing of these hikes, but its median projection for two hikes this year now lines up with our view, and the consensus of many economists.

One hawk dissented, (E. George), but the rest were willing to agree with a short statement that didn’t take a strong stand on where things go from here.  

On the whole, largely due to the sharp shaving of the dots projection, the message will be viewed as dovish, but any rally will run into some rethinking given the fed funds futures were still priced for fewer hikes this year than this new dot projection.

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