Fed: Dovish SEPs no surprise - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the second element of the FOMC policy meeting – the dovish SEPs – was clearly more predictable and really not that surprising.

Key Quotes

“The second DOT from 2016 was obviously always going to be removed which then allowed for lower levels throughout the forecast period. A further DOT was then also removed from 2017 and 2018 meaning the Fed now expects two rate hikes in 2017 rather than three previously, taking the fed funds to 1.125%; with three rate hikes in 2018 to 1.875% and a further three in 2019 to 2.635%.

As is nearly always the case, we remain very sceptical of the Fed’s inflation projections. The core PCE annual inflation rate is predicted to only rise 0.1ppt to 1.8% next year and then only 0.2ppt to 2.0% in 2018. We see clear upside risks to that given what happens to core CPI tends to slowly follow (to a lesser degree) in the PCE measure as well.”