USD fallout limited after few surprises - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the swaying one way and then the other by FOMC members in communications ahead of the meeting was evident in the FOMC statement last night after three FOMC members dissented against the vote to maintain the federal funds rate in the range of 0.25%-0.50%.

Key Quotes

“Our view going into the meeting was that dollar risks were to the downside and we maintain that view now although the fallout is likely to be limited given the strong signal of a rate increase at one of the final two meetings of 2016.

There were in some sense two conflicting elements to this announcement. The FOMC votes and the statement were certainly on the hawkish side while the Summary of Economic Projections could be viewed more on the dovish side. The third component of these quarterly meetings with updated economic projections – Yellen’s press conference was more mixed.

The details of the FOMC statement itself make you wonder why the Fed didn’t hike. The description of the economy was clearly upgraded while the FOMC also decided to re-instigate its balance of risk assessment indicating a greater degree of confidence over the economic outlook.  But the biggest news from the statement was of course the three dissents.

Clearly, the FOMC is divided and Yellen was perhaps left with a choice of accepting three dissents from regional Presidents (Presidents Mester, George and Rosengren) or perhaps three dissents for a hike from three Governors (Governors Brainard, Tarullo and Powell). Yellen was always going to choose the former. The dissent from three FOMC members last night was only the fourth occasion since 1992.”