Phillip Macro Update: 5 key points from the September FOMC Meeting September 21, 2017 1274


The U.S. Federal Open Market Committee (FOMC) just concluded their two day meeting on the 20th of September. The meeting discussed the Fed’s monetary policies stance and economical projection.

Five key points to note

On monetary policies:

1. Interest Rates – U.S. Federal Reserve (Fed) left the benchmark interest rate unchanged in a range of 1% to 1.25%. This was within the market expectation. Based on the median range of the dot plot by FOMC participants, we are expecting to end 2017 with a range of 1.25% to 1.5%. This indicates another rate hike before the end of the year. The probability of the December rate hiked increased from 49% to 62% after the meeting.

2. Fed Balance Sheet – October was set for the beginning of the balance sheet normalisation program that was outlined in June. The policy normalisation plan was discussion in our previous report. In summary, the plan will gradually decrease the Fed balance sheet in a gradual and predictable manner so as to guard against outsized moves in interest rates and other potential market strains.

On economic outlook:

3. Economic Growth – Median projection of economic growth for 2017 was 2.4%, up from June projection of 2.2%. Fed was more buoyed about the full year economic growth even after taking into consideration a subdued third quarter due to the disruption caused by Hurricanes Harvey, Irma and Maria.

4. Labour market condition – Job gains remained strong over the past three months ending August, and an unemployment rate of 4.4% in August remains modestly lower than Fed median estimates in the longer run. A steady participating rate is seen as a positive sign in light of an aging population. The Fed expect job markets to strengthen further.

5. Inflation – Year-on-year change in inflation remain soft by the Fed preferred price index of personal consumption expenditures (PCE). Inflation was at 1.4% in July, running below FOMC longer-run target of 2%. However, the Committee expects inflation to move up and stabilise around 2% as labour markets continue to strengthen. FOMC admitted that their understanding of the forces driving inflation is imperfect therefore they will monitor the development of inflation closely.

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About the author

Profile photo of Pei Sai Teng

Pei Sai Teng
Investment Analyst
Phillip Securities Research Pte Ltd

Sai Teng covers the global macro research. He has more than 6 years investment experience primarily in portfolio construction and asset allocation. He graduated with Bachelor of Science in Banking and Finance from University of London.

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