FOMC SUMMARY: Fed hikes as expected in unanimous decision; dot plot sees one more hike this year

FOMC: The Fed hiked rates by 25bps as expected, taking the target range for the federal funds rate to 3.75-4.00%, with the decision unanimous. The statement saw only minor changes, with the Fed saying the rate hike would help return inflation to target in a more timely manner, while reiterating its commitment to price stability. The Fed maintained that inflation remains elevated, although it dropped the previous language attributing this in part to supply shocks.

On activity, the Fed maintained that the economy is expanding at a solid pace, while adding that domestic spending has remained resilient despite uncertainty stemming in part from geopolitical developments. It maintained that productivity growth is strong, while describing capital investment as "robust", versus "strong" previously. Labour market language was broadly unchanged, with the Fed reiterating that job gains have kept pace with growth in the workforce and the unemployment rate has changed little.

DOT PLOT/SEP: Regarding the dot plot, Warsh did not submit forecasts again, with 18 participants submitting projections. The dots were hawkish, with the median seeing another 25bp hike in 2026. Twelve participants pencilled in one further hike this year, four saw two additional hikes, while just two saw no further hikes. The median remains at 4.125% through end-2027, implying one further hike this year followed by rates remaining on hold throughout 2027, before easing to 3.875% in 2028 and 3.625% in 2029. The longer-run rate was lifted to 3.2% from 3.1%. Growth forecasts were raised by 0.1ppts in both 2026 and 2027, while 2028 and the longer-run projections were maintained. Unemployment projections were lowered to 4.1% across 2026-28, while the longer-run rate was maintained at 4.2%. Both headline and core PCE inflation projections were raised for 2026 and 2028, while the 2027 projections were maintained.