On the dot

More than the change in the policy forecasts from the “median member”, it’s the division within the Federal Open Market Committee (FOMC) which we think is the most interesting signal we got from the Federal Reserve (Fed)’s communication last week. Indeed, in any case the market did not believe the message from the old “dot plot” – and its unchanged policy rate before 2024 – long before last week. From this point of view, with two 25-basis-point (bp) hikes pencilled in in 2023 (which has been our baseline since the end of last year), the Fed policy forecast is more realistic, while remaining extremely accommodative: the central bank would refrain from hiking the policy rate for around two years after the output gap is plugged, which is likely to have happened in Q2 2021 already