While Yellen still speaks in her historic "first rate hike in years" press conference, the sellside has already shared its kneejerk reaction to the Fed's announcement, and as Citi notes, "It’s calm on the floor considering the first rate hike in years. More attention on WTI crude, which remains 4% lower to 35.80 after DOE inventory build."
More from Citi:
Our Treasury desk notes real money flow in front end with better buying around the 2-year point as its yield briefly popped above 1%. Little seen in the back end.
Credit spreads remain tighter by 1-3bp although there are spots of weakness, like some energy names where spreads are +25bp. “Maybe a touch better now, but tone was firm pre-Fed so can’t really attribute this to Fed,” our tech trader says.
Selling was seen in the credit ETFs right after the Fed, took prices off the highs. Lots of action in the options space, trader there says market is moving fast.
HY25 is up around 1/2 point, the highs of the day now, nearing 101 as IG moves 1.5bp tighter. HY25 is well bid.
And here is Goldman:
BOTTOM LINE: The FOMC raised the funds rate to 0.25-0.50%, as widely expected. The post-meeting statement signaled a baseline of further funds rate increases, but expressed caution about inflation developments. The Summary of Economic Projections (SEP) showed an unchanged median funds rate for end-2016; median projections for 2017-18 declined moderately.
MAIN POINTS:
1. The FOMC raised its target rate for the federal funds rate at today’s meeting to a range of 0.25-0.50%, ending a seven-year period at 0-0.25%. The supplementary “implementation note” announced the following changes: an increase in the interest on excess reserves rate (IOER) to 0.50% (from 0.25%); an increase in the reverse repo (RRP) facility rate to 0.25% (from 0.05%); a removal of the cap on the RRP facility (it will be constrained only by the stock of Treasury securities held by the Fed; previously the Fed capped this program at $300bn); and an increase in the discount rate to 1.00% (from 0.75%).
2. The post-meeting statement signaled a baseline of further funds rate increases, but expressed caution about inflation developments. In particular, the statement said: “In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”—stressing the “gradual” message repeated in many public comments by Fed officials. The statement also added that “some” survey-based measures of longer-term inflation expectations “edged down”.
3. The statement also noted that the “stance of monetary policy remains accommodative”, even after the increase in the funds rate—a phrase the FOMC also used during the 2004 tightening process. Additionally, the statement said that the runoff of the Fed’s balance sheet is not likely to begin until “normalization of the federal funds rate is well under way”.
4. In the Summary of Economic Projections (SEP), participants made few changes to their forecasts for the economy and monetary policy. Fed officials raised their projections for GDP growth moderately for 2016 and lowered their projections for the unemployment rate. However, they also reduced the projection for core PCE inflation to 1.6% for end-2016 from 1.7% previously. The median projection for the funds rate at the end of 2016 was unchanged at 1.375%; the median funds rate projection for the longer run was also unchanged at 3.5%. Median projections for 2017-18 declined moderately.
More as we see them.