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Fast Comment USFed leaves rates on hold, door open for March hike

  1. Fed leaves rates on hold as expected
  2. Minor tweaks to press statement - door open for March hike
  3. Further upside to market rates
Fed leaves rates on hold as expected
As widely expected, the Fed left rates on hold following a two-day policy meeting. The initial market reaction was small but bond yields rose slightly and the USD strengthened somewhat. The January policy meeting is not followed by a press conference so the communication is limited to the press statement.
Minor tweaks to press statement - door open for March hike
The changes to the December press statement were minor. The Fed acknowledged that market-based inflation expectations have moved higher (but remain low) since December. The Fed also added a "further" in front of "gradual increases in the federal funds rate". None of this suggests any change of the pace of rate hikes ahead, in our view. Everything points to the next hike taking place in March, which is almost fully priced by markets. This was the last policy meeting with Janet Yellen as Chair and she now passes the baton to Jerome Powell (formally on Saturday, the day before Powell turns 65).
Further upside to market rates
Markets have played catch-up with the Fed over the past year, with a continuous increase in expected rate hikes. Currently, the market is pricing a bit more than two and a half rate hikes in total in 2018, which is almost one full rate hike more than before the December meeting. The Fed’s median forecast is three hikes and this is also our main scenario. However, we see upside risks to this forecast, i.e. we see a higher probability of four hikes this year than two.

Sources: Bloomberg, Handelsbanken Capital Markets


Claes Måhlén

Chief Strategist

Fixed Income

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