The Federal Reserve as widely anticipated increased of 25bps, but the major difference that the “dot plot” (forecast) for next year now predicts 3 rate increase and not two.
The speech was somewhat accommodating.
Immediately the market sold off (mildly I have to say).
The three rates increase to me seem excessive with so many question marks (strong dollar, China devaluation, European elections, Trump). Last year, when the Fed increased, they were forecasting 4 rate hikes and they did one.
They always verge in the positive so they can always backtrack.
Now the Fed will look at the 10 years US Treasury bond that suddenly increased to 2.57 (over 2.75/3 creates problems as there is the reset in loans, mortgage rates etc) and potential dislocation in the “money flow” towards the USD (Eg now the yuan is over 6.9 – very close to the 7)
The environment is still quite bullish, but there is a potential for an unforeseen event.
I am positive, but uncomfortably so.
investorpolitico 