Finance, Treasury

Fed hikes by 25bp in June.

June 15, 2017

Yellen hikes another 25bp in June 2017. 

After holding pat in May, the FOMC decided to raise interest rates by 25 basis points, from a range of 0.75 – 1.00% to 1.00 – 1.25%.

Despite some doubters, Yellen has proven the hawks correct and that ZIRP (zero interest rate policy) is certainly a thing of the past now!

Let us follow through the FOMC statements, (Strikethroughs – Omissions. Underlines – Additions)

  1. Information received since the Federal Open Market Committee met in March May indicates that the labor market has continued to strengthen even as growth in and that economic activity slowed has been rising moderately so far this year.
  2. Job gains were have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined. Household spending rose only modestly, but the fundamentals underpinning the continued growth of consumption remained solid has picked up in recent months, and business fixed investment firmed has continued to expand.
  3. On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent. Inflation measured on a 12-month basis recently has been running close to the Committee’s 2 percent longer-run objective.
  4. The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.
  5. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near term risks to the economic outlook appear roughly balanced. The , but the Committee continues to closely monitor inflation indicators and global economic and financial is monitoring inflation developments closely.
  6. In view of realized and expected labor market conditions and inflation, the Committee decided to maintain raise the target range for the federal funds rate at 3/4 to 1 to 1 to 1-1/4 percent.
  7. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. ,and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. The Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated. This program, which would gradually reduce the Federal Reserve’s securities holdings by decreasing reinvestment of principal payments from those securities, is described in the accompanying addendum to the Committee’s Policy Normalization Principles and Plans.
  8. Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell. Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.

More hikes to come? July,Sep, Oct & Dec?

There are 4 more meetings this 2017.

Will we see 4 more hikes? I seriously doubt so. The guidance above clearly shows the range of options at FOMC’s disposal than just mere Fed Funds Rate. They will manage their balance sheet and reducing a normalisation program is akin to a rate hike.

That said, I’m more inclined to place my bets on at least 1 more rate hike before we see 2018! Not in July, perhaps later.

about author

Seng Ti is currently heading a Treasury & Finance team in a MNC and is active in the Corporate Treasury scene. He enjoys reading and discussing about current affairs, politics, life, wine and lives a normal life with his wife and 2 young kids.