HiFX Data Update - US Fed Interest Rate Decision

HiFX Data Update - US Fed Interest Rate Decision - No Change - NZD higher

The US Federal Reserve Open Market Committee (FOMC) have just announced US interest will remain unchanged for now but may raise rates fairly soon.

The key points from this meeting include:

Might be appropriate to raise rates again 'fairly soon,' many officials said
Some participants said rate increase 'at an upcoming meeting' could give Fed greater flexibility

Many officials saw only modest risk of substantial employment undershoot, inflation overshoot

Many officials said Fed would 'likely have ample time' to respond to rising price pressures

Several officials saw possibility of raising rates more quickly than anticipated
Couple participants concerned communications might be misunderstood as commitment to only 1-2 rate increases per year

Most officials saw heightened uncertainty about timing, size, effects of fiscal policy changes

Most officials thought 'some time' would be required for policy outlook to become clear

Despite uncertainty, most officials said gradual pace of rate increases likely appropriate

Participants viewed possibility of fiscal expansion as having increased upside forecast risks

Several officials cited downside risks from stronger dollar, financial vulnerabilities abroad

Downside risks from weaker economic activity abroad 'diminished somewhat,' several officials said

Downward pressure on longer-term rates from Fed's balance sheet expected to diminish

Officials agreed to begin discussions about balance sheet strategy at upcoming meetings

A few participants said increase in equity prices might reflect unrealistic policy expectations

Some officials concerned low market volatility appeared inconsistent with policy uncertainty

Several officials thought some slack remained in labour market
Most officials expect labour markets will keep tightening, jobless rate will run 'only modestly below' longer-run rate

Several participants projected a 'more substantial ' undershoot of jobless rate
Some officials saw risk inflation pressures may build more rapidly than expected
Some officials thought further USD appreciation might weigh on Fed's progress toward inflation goal

Fed also revises rules on staff presentations, data releases during blackouts
Fed 'explicitly' recognizes need for ongoing communication by staff during blackout

Staff judges vulnerabilities of U.S. financial system as moderate
GDP in fourth quarter 'a litter faster' than expected by staff
Staff expects first-half GDP to grow 'essentially the same' as fourth quarter
Staff sees uncertainty around its economic projections similar to average of past 20 years
Staff sees risks from abroad 'as less pronounced than in the recent past'
The NZD-USD moved higher in immediate response.

Current indicative levels are:

NZDUSD 0.7175 / 0.7200
NZDEUR 0.6790 / 0.6815
NZDGBP 0.5755 / 0.5780
NZDJPY 81.15 / 81.40
NZDAUD 0.9315 / 0.9340
NZDCAD 0.9450 / 0.9475

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