• Rates: The Fed hiked interest rates by 25bps from 0.00-0.25% to 0.25-0.50% in a unanimous decision. Fed also raised their discount rate to 1.00% from 0.75% and removed the reverse repurchase facility cap which was previously held at USD 300bln in order to facilitate the rate hike.
• Inflation: Fed members lowered median expectations for rate forecasts (2016 held at 1.4%), with the 2017 Fed Funds Rate estimate lowered to 2.4% from 2.6% and 2018 median estimate lowered to 3.3% from 3.4%.
• Inflation: The Fed said it is now “reasonably confident” that inflation will move higher to their 2% mandate over time. This is slightly different wording from the October meeting where the Fed said “expects” inflation to gradually rise.
• Labour Market: The Fed remained positive on the US jobs market saying they are observing further improvement and the underutilisation of resources has diminished “appreciably” since the beginning of the year. However, Chair Yellen did add that labour market slack had not completely diminished and US wages have not yet shown sustained growth.
• Market reaction: there was a large amount of volatility, although US equity markets ultimately gained as the lift-off suggested confidence in the economy and projections hinted of a slower path of increases. USD strengthened against major counterparts despite initial fluctuations, while the US 10y future Mar'16 saw volatility before settling lower by 11+ ticks only for losses to be pared during Asia-Pacific trade with the US curve bull-flattening post-decision.
Asian markets tracked the firm gains seen in US equities with the Nikkei 225 (+1.6%) outperforming as gains were further stoked by a weaker JPY relative to the USD, while the ASX 200 (+1.6%) was led by Utilities following reports that AGL Energy gave a 5 ½yr contract to WorleyParsons. Chinese bourses completed the positive regional tone triggered by the Fed rate decision.
Newsflow from Europe and the UK remains light overnight.
NZD/USD saw mild support following a better than expected New Zealand GDP release. However, gains were short lived as commodity linked currencies were pressured following losses in the energy complex and overshadowed by USD strength post-FOMC lift-off. This saw the USD-index advance closer towards the 99.00 level, while EUR/USD and GBP/USD broke below the 1.0900 and 1.5000 handles respectively.
New Zealand GDP SA (Q3) Q/Q 0.90% vs. Exp. 0.80% (Prev. 0.40%, Rev. 0.30%)
- GDP (Q3) Y/Y 2.30% vs. Exp. 2.30% (Prev. 2.40%). (BBG)
Argentina announce that they have lifted their controls on the ARS due to the decline seen in their currency. (BBG)
WTI crude futures remained subdued overnight after falling almost 5% in yesterday’s session following the increase in US output and unexpected build in DOE inventories, while gold (-0.47%) continued its declines overnight post FOMC lift-off.
US President Obama has averted a shutdown by signing a temporary funding bill to extend the deadline to December 22nd. (RTRS)