U.S. Fed hikes rate by 25 bps, rate hikes to stay gradual - Barclays

The FOMC hiked the target rang for the federal funds rate today by 25 basis points to 1.25-1.5 percent, widely expected by markets. The Federal Open Market Committee made just modest changes to the statement, the most marked of which was an upgrade in the description of the rate of job gains to “solid” whereas the committee saw earlier employment as restrained by the hurricanes.

Meanwhile, participants made a considerable upward revision to the real GDP growth for next year from 2.1 percent to 2.5 percent along with a modest downward revision to the path for unemployment in the medium term. In spite of the upward revision to growth and below 4 percent jobless rate forecast, the central bank’s inflation outlook remained the same. This might be explained by a steeper policy rate path or a lower NAIRU estimate, yet neither of these appeared in the projections, stated Barclays in a research report.

The median policy path continued to be unchanged at three hikes per year in 2018 and 2019, widely consistent with the projection. An upward revision to the median policy path was not expected, but the average rate was expected to move higher, noted Barclays.

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