Financial market participants took the Fed policy meeting outcome as “dovish,” but the end result was a little more hawkish. The Fed’s revised economic projections weren’t much of a surprise, but they illustrate the thinking behind the expected monetary policy outlook. Of course, there are risks, notably a major misstep on trade policy. Gulp!
The Federal Open Market Committee raised the federal funds target by 25 basis points to 1.50-1.75%. The dots in the dot plot edged slightly higher, which likely reflected the fact that Janet Yellen is no longer one of the dots. While the median number of expected rate hikes for 2018 remained at three, most (12 of 15) Fed officials were evenly split between three and four.
Despite signs of moderation in the pace of growth in consumer spending and business investment at the start of this year, Fed officials expected strong GDP growth in the remainder of the year and into 2019. Growth is then expected to slow to trend as job gains move down to a sustainable pace.