FOMC, As Expected, Begins Withdrawl Of Stimulus; 1/4 Point Rate Hike Looming

As expected, liftoff and the beginning of the planned withdrawal of stimulus has begun. The Fed has lifted its fed funds target to a range of 0.25 to 0.50 percent, meeting expectations for a 1/4 point rate hike from its long-held recovery range of zero to 0.25 percent. The vote was unanimous, 10-0. The Fed sees only gradual rate increases ahead and expects the funds rate to remain accommodative, that is below long-term levels for some time. The statement cites "considerable" improvement underway in the labor market and says it is "reasonably confident" that, in the medium term, inflation will move to its 2 percent target as the effects of prior declines in energy and import prices fade. Turning to the FOMC forecasts, the Fed still expects the median funds rate to end 2016 at 1.4 percent though 2017 is moved down to 2.4 percent from 2.6 percent. The Dow initially moved lower but then quickly moved higher in initial reaction to the statement. In other moves, the discount rate has also been lifted by 1/4 point, to 1.00 percent from 0.75 percent. The Fed is also hiking interest on excess reserves to 50 basis points from 25 basis points. The reverse repo rate is set at 25 basis points from 5 basis points. There is no change in the reinvestment of Treasuries and mortgage-backed securities. Today's results are likely to qualify as a dovish rate hike. Changes in policy all met expectations and the description of the economic outlook remains moderate with the statement specifically citing softness in exports as a negative factor. Next up will be Janet Yellen's press conference.

Recent History Of This Indicator The first rate hike of the recovery is expected for the FOMC meeting announcement at 2:00 p.m. ET, lifting the fed funds rate to 0.375 percent from a range of zero to 0.25 percent. The assessments of the labor market and of inflation will be closely watched, with the former having improved but the latter remaining soft. FOMC forecasts will also be posted along with the announcement, shortly followed by the Fed Chair press conference.