The Fed did the smallest change in monetary policy that it possibly could. The key message is – rates will eventually go up, just not too soon.
The dot-plot shows the most significant change for the markets. In March the majority at the FOMC saw no hikes through 2023. Now some see moves in 2022, the median sees 2 hikes in 2023 and the 2023 dots are scattered (with some members seeing 3,4 or more hikes). This opens up the “rate hike” debate.
The other important change is IOER hike from 10 to 15bps. This is not much but it should sap some of the liquidity from the markets. Remember, record overliquidity pushed money to stocks and bonds.
Economic projections are barely changed – Fed remains defiant on inflation and this means should inflation outlook not improve, the Bank might be forced to act quicker.
Finally, the statement is unchanged – there’s no message on QE tapering which might be seen as a sweetener.
We will hear more from Powell at 7:30pm
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