Flash Notes-US FOMC: June Unmoved, Signals Gradual Rate Trajectory

The Fed kept its ultra-low rates policy unchanged in June, even as Yellen said that rate liftoff remains on coursein 2015 but continued to emphasize on data-dependent guidance and that exact timing of lift-off matters lessthan the path of rate hike which is likely to be gradual. The Fed statement was again viewed as dovish.

    The Fed’s 2015 GDP growth forecasts were downgraded further while unemployment expected slightly higherwith inflation projections mostly unchanged from March. More importantly, the June dot-plot chart forecastswere marginally more dovish compared to March.

    We now expect the first Fed rate hike to take place in the 16-17 September 2015 FOMC but we revised lower therate trajectory, expecting the FFTR to reach 0.75% by end 2015, and 1.75% by end 2016. That said, we fear thatre-emergence of US political brinkmanship in late 2015 could complicate Fed monetary policy decision making.