News Headline Summary



• FOMC cuts QE3 pace to USD 35bln/month, as expected (USD 5bln has been tapered in Treasuries and USD 5bln in MBS)
• More Fed officials see at least 1% Fed Fund Rate at the end of 2015 and more see at least 2.5% at the end of 2016
• Fed says 12 officials would prefer first rate hike in 2015 (Prev. 13); 3 in 2016 (Prev. 2)
• Median view of appropriate federal funds rate at end-2015 1.125% (Prev. 1.00%), end-2016 2.50% (Prev. 2.25%), longer-run 3.75% (Prev. 4.00%).
• Lower growth forecast, lower unemployment, and inflation forecast little changed.

- Initial volatility was seen after the latest Fed monetary policy decisions as markets scrambled to interpret the projections, which showed that although less officials see the appropriate timing of policy firming in 2015, more Fed officials see at least a 1% Fed Fund Rate (FFR) at the end of 2015 and more see at least 2.5% at the end of 2016. However, the medium projection for longer-run rate is 3.75%, below the prior view of 4.00%.

- Eurodollars are still pricing in the first rate hike in June 2015, although the yield curve has seen notable flattening as the prospect of higher rates in 2015 and 2016 pressure the short-end, but the prospect of lower rates in the longer-term support 30s.
- With the climb in US equities (the S&P 500 at record highs) following the decision and throughout the Q&A, the VIX index is trading lower by over 10%, and trading back below 11.00 at its lowest level since 2007.

- Following a fall in US rates, USD/JPY has seen selling pressure and the pair trading at intraday lows on unfavourable rate differentials. AUD/USD has seen particular upside since the meeting due to the widening of the AU/US yield spreads on central bank policy divergence (AUD/USD trading up ~60 pips). - Emerging markets currencies are all stronger against the USD (incl. BRL, MXN, ZAR & TRY) as the Fed steered away from delivering a particularly hawkish tone.

- Goldman Sachs response: Changes to the June FOMC statement were limited, and on balance just slightly more dovish than we expected. The Summary of Economic Projections (SEP) was mixed. On the one hand, the median funds rate projections moved up in 2015 and 2016. On the other hand, one additional participant now expects a first rate hike in 2016 and the longer-term projections for the funds rate came down.

- Fed watcher Hilsenrath wrote that Federal Reserve officials have nudged up their projections for short-term interest rates in 2015 and 2016 but slightly reduced their outlook for interest rates in the longer-run.

Analysis details (22:08)

Fed dot plot available here:

18 Jun 2014 - 22:07 - Fixed Income - Source: RANsquawk

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