• The dollar gained on Wednesday in choppy trading after the Federal Reserve raised U.S. interest rates as expected for the eighth time, flagged more rate hikes and signaled the end of the “accommodative” policy era.
• “The removal of the term ‘accommodative’ does signal that the neutral rate is on the radar and the FOMC will need to justify restrictive monetary policy in the coming year, a somewhat dovish development in our view,” said Marvin Loh, senior global market strategist, at BNY Mellon in Boston.
• Powell noted that the dollar has only partly recovered the decline it had in 2017. Some analysts said this suggested that the Fed believes the currency’s uptrend is still in place.
• Against the yen, the dollar rose slightly at 112.67 yen JPY=.
• The euro briefly hit session highs versus the dollar after the Fed decision, before falling to $1.1747 EUR=, down 0.2 percent. Some market players believe the euro's outlook has brightened and investors are positioning for a rebound.
• FOMC Meeting 25-26 September,2018
The U.S. Federal Reserve raised interest rates on Wednesday and left intact its plans to steadily tighten monetary policy, as it forecast that the U.S. economy would enjoy at least three more years of growth.
In a statement that marked the end of the era of “accommodative” monetary policy, Fed policymakers lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2.00 percent to 2.25 percent.
The U.S. central bank still foresees another rate hike in December, three more next year, and one increase in 2020.
That would put the benchmark overnight lending rate at 3.4 percent, roughly half a percentage point above the Fed’s estimated “neutral” rate of interest, at which rates neither stimulate nor restrict the economy.
• Economic outlook
Along with the move, committee members showed a more optimistic view of the U.S. economy.
In the latest installment of their quarterly projections, FOMC officials collectively estimated gross domestic product to rise 3.1 percent in 2018, an upward revision from the 2.8projection back in June.
The forecast for 2019 also moved higher by 0.1 percentage points to 2.5 percent. The estimate for 2020 remained at 2 percent.
Committee members for the first time released their 2021 projections, which see the economy growing at a 1.8 percent rate, aligning with the long-range forecast.
The unemployment rate forecast ticked higher to 3.7 percent from June's estimate of 3.6 percent.
Forecasts for interest rate moves ahead remain unchanged from June, though the expectations for individual members, expressed through the so-called dot plot, showed a greater range of estimates.
There was some upward drift in the grid. A dot widely believed to belong to St. Louis Fed President James Bullard, for instance, rose a quarter point for 2018. Two more hawkish dots for 2020 that saw the range between 4 percent and 4.25 percent drifted lower, though the dots overall for that year shifted higher.
The committee still indicated another rate hike before the end of 2018 and likely three more in 2019. There's one more increase factored in for 2020, bringing the median range to 3.4 percent where it is expected to stay through 2021 before settling to 3 percent over the longer run, an increase from June's projection of 2.9 percent.
That conflicts with current market expectations. Fed funds futures contracts currently are implying a rate of 2.825 percent by the end of 2019, which would put the market at least one rate hike behind the Fed's intentions.
• "The Fed is looking at an economy that in 2021 is slowing, and this is the first time they've said that," said Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch. "I think the confidence about how long the economy is expected to stay strong is waning."
• President Donald Trump on Wednesday said he was not happy about the Federal Reserve’s decision earlier in the day to raise its benchmark interest rate, but added the increase was a result of a strong economy.
“We’re doing great as a country. Unfortunately they just raised interest rates because we are doing so well. I’m not happy about that,” Trump told a press conference.
“I’d rather pay down debt or do other things, create more jobs. So I’m worried about the fact that they seem to like raising interest rates.”
• U.S. President Donald Trump said he had agreed with Japanese Prime Minister Shinzo Abe on Wednesday to start talks on a bilateral free trade agreement that Tokyo has been resisting.
• U.S. President Donald Trump on Wednesday blasted Canada over the slow pace of talks over NAFTA, saying he was so unhappy that he had rejected Canadian Prime Minister Justin Trudeau’s request for a one-on-one meeting.
The remarks by Trump, who repeated a threat to impose tariffs on Canadian autos, knocked the Canadian dollar CAD=D4 down to a one-week low against the U.S. greenback .DXY.
• The International Monetary Fund on Wednesday increased its three-year lending program with Argentina by $7 billion to $57 billion, on the condition that the central bank halted full-scale interventions to support the ailing peso.
The prospect of a “no-deal” Brexit is in sharp focus after Prime Minister Theresa May said talks with EU leaders were at an impasse last week.
• Food retailers and suppliers could lose 9.3 billion pounds ($12.2 billion) as a result of new tariffs if Britain leaves the European Union without a deal, a study commissioned by Barclays said on Thursday.
• Oil prices eased on Wednesday after U.S. data showed a surprise build in domestic crude inventories, but an impending drop in Iranian exports kept Brent futures above $80 a barrel and on track for a fifth straight quarterly gain.
Global benchmark Brent fell 53 cents to settle at $81.34 a barrel. On Tuesday, Brent rose as high as $82.55, the highest since November 2014.
U.S. West Texas Intermediate (WTI) crude futures lost 71 cents to settle at $71.57 a barrel.
• U.S. crude inventories rose 1.9 million barrels in the week to Sept. 21, according to U.S. Energy Information Administration (EIA) data. Analysts had expected a decrease of 1.3million barrels.
Reference: Reuters, CNBC
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