FOMC review: Unchanged hiking signals as QT is set to begin next month – Danske Bank

Analysts at Danske Bank explain that as expected, Fed maintained the target range at 1.00%-1.25% and announced it will start shrinking its balance sheet (‘quantitative tightening’) next month.

Key Quotes

“More interestingly – and in line with our expectations as written in our preview - the Fed maintained its signal of one more additional hike this year and three hikes next year and made no changes to inflation wordings in the statement.”

“Markets interpreted this hawkishly by sending EUR/USD lower and US Treasury yields higher. Markets are now pricing 60% probability of a December rate hike. The dip in EUR/USD should prove shallow and short-lived.”

“Process of reducing the balance sheet in line with what the Fed has previously communicated but we were surprised that the Fed did not communicate a target for the balance sheet.”