USD: Aug FOMC: Next Hike In Sep; Market Pricing On Hikes Path Too Dovish – SEB

The Fed left the rates unchanged and made very few tweaks to the statement. Is the next hike priced in?

Here is their view, courtesy of eFXdata:

SEB Research discusses its reaction to today’s FOMC August policy statement.

“As widely expected, the Federal Reserve (Fed) decided today to keep its target range for the federal funds rate unchanged at 1.75-2.00%.

The Committee continues to pre­sent up­beat assessments of the outlook for US growth and inflation. With current pro-cyclical fiscal po­­licy, a labour market that generates payroll increases on average of 215,000 per month – far above what is needed to provide jobs for new entrants – and an inflation rate that runs close to 2%, current expansionary financial conditions jus­ti­fy a less ex­pan­sionary policy,” SEB notes.

We expect the Fed to raise its policy rate eve­ry quarter the next 12 months to 3.0% (June 2019). This scenario, indicating solid eco­nomic ac­ti­vity, gets strong support from recent Beige Book. At next FOMC meeting on Septem­ber 26, the Fed will lift the target range by 25bps (90% probability accor­ding to cur­rent market pricing). Our 12-month-scenario implies a policy path that moves gradually from mo­destly accommodative today to neutral (3.0%) and, after so­me time, probably modestly beyond neutral. We see current market pricing of Fed hikes as too dovish,” SEB argues.

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