FOMC offers little additional information or guidance - BBH

According to analysts from Brown Brother Harriman, the Federal Reserve meeting, where the central bank rose the target rate for the first time in a year, left little additional information or guidance. They explained that visibility has diminished by the election and the unknown state of fiscal policy going forward.

Key Quotes: 

“The  FOMC statement tweaked the economic assessment to reflect the recent economic data. However, officials seem more confident that although growth is unspectacular it is not as fragile as it may have appeared. The Fed did recognize the unemployment rate has declined, while in November, it was still little changed.”

“It also recognized that "market-based measures of inflation compensation," which is the yield curve and the breakevens, have moved up "considerably," which is a new qualifier. However, it still assessed these to be low. This seems to be behind the increase in the number of rate hikes that are seen as appropriate next year from two to three. The Fed funds futures had priced in two hikes by the end of next year.  On the other hand, economists in a recent Wall Street Journal survey anticipated three hikes.”

“The economic projections adjustments were mild, taking growth slightly higher, but growth over the next three years is currently not expected to be above 2.5%.”

“Yellen acknowledged that fiscal policy is one of the major factors that could impact economic conditions and monetary policy. In the press conference, Yellen played down the changes to the forecast suggest hat that they were very small and reflected the changes of a few members. She was not baited by questions about the fiscal stimulus promised by the President elect. She explained that some supply-side changes could boost growth potential and not be inflationary.”