The Fed is more confident on the recovery and brings forward to 2023 the first hike

In Short

The Fed has grown more confident in the positive signals the economy is providing and in a surprising move, brough forward to 2023 the date of the lift-off and foreseeing two rate hikes in that year. This increased confidence was visible in the tone of the press release.

Highlights:

  • The Fed is projecting a faster return to normality, and therefore monetary normalisation could be speeded up; two hikes in 2023, bringing the Fed funds rate to 0.625%, are now deem appropriate.
  • Growth projections for 2021 were marked up, and expected inflation was raised. However, the medium-term forecasts remain broadly unchanged with respect to March. The spike in inflation is considered transitory.
  • The FOMC started talking about talking about tapering. No timeframe was hinted at but we expect an announcement by the September meeting.
  • The surprise move lifted bond yields, especially at the short end of the curve and caused the S&P500 to lose 0.6% on the announcement.

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The Fed is more confident on the recovery and brings forward to 2023 the first hike
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