Summary

• The Federal Reserve has left monetary policy unchanged at Kevin Warsh’s first meeting as Chair.
• The new “dot plot”, has 9 of 18 members pencilling in a rate hike versus zero in March, which shows the Fed has gone well beyond signalling “two-way risk” on interest rates, to a clearly more hawkish position.
• Markets are now pricing 32bp of rate hikes this year, with a cumulative 42bp by this time next year, versus 19bp and 33bp respectively ahead of the release.
• Impact reaction to the FOMC outcome was a flatter curve, led by the front end.
• After this week’s large fall in energy prices, FX markets probably went into today’s FOMC meeting with a neutral bias.

By James Knightley, Chief International Economist, US; Padhraic Garvey, CFA, Regional Head of Research, Americas; and Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE

Markets acknowledge the prospect of higher