Danske Bank
- The Fed surprised today by issuing a much more hawkish statement than expected.
- First, the Fed decided to strengthen its language on the labour market by pointing to solid job gains and saying that ‘on balance, a range of labour market indicators suggests that underutilisation of labour resources is gradually diminishing’, a change from the ‘significant underutilisation’ description in the previous statement.
- Second, the Fed did not soften the language on inflation as much as expected, as it continues to state that ‘the Committee judges that the likelihood of inflation running persistently below 2% has diminished somewhat since early this year’. It does note, though, that market inflation expectations have declined and that nearterm inflation is likely to be held down by ‘lower energy prices and other factors’.
- Third, the Fed concluded asset purchases without leaving any comment that it could be restarted should the outlook be worse than expected. Instead, the Fed reiterated that hikes could come later if progress towards its targets proves slower than expected. However, it also still says that hikes could come sooner if progress is faster. So, there is symmetry here still.
