Quick take: Economists keep hawkish outlook even as FOMC holds rates

THE US Federal Reserve reiterated its intention to lift rates gradually as the labor market tightens, while noting rising confidence among US consumers and businesses.

The policy-setting Federal Open Market Committee (FOMC) left its benchmark lending rate unchanged on Wednesday. It acknowledged that sentiment has gained, and that inflation will rise to their 2 per cent target even with "gradual" adjustments in interest rates.

Here are some economists' comments:

Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock:

"It isn't surprising that the FOMC held rates steady with yesterday's policy announcement, given that it just hiked in December, but market participants underappreciate the probability of the Fed moving in March."

"The Fed is very close to achieving both its mandated goals, and the reflationary environment that has taken hold in the economy is likely to result in a moderately faster pace of rate normalisation, in our view."

"If the Fed does move in March, we could see as many as four hikes in 2017, and as long as data remains supportive, very likely three hikes. The markets have anticipated some of the price momentum of the reflationary impulse, but they have been slower to accept the policy adjustment that reflation implies."

Alvin Liew, economist at UOB:

"The First FOMC decision of 2017 was very much in line with market expectations as the Fed Reserve decided to leave its Fed Funds Target Rate (FFTR) unchanged at 0.50-0.75 per cent on February 1. This was a unanimous decision (10-0) with three first time FOMC voters in the committee (i.e. Dallas Fed President Robert S Kaplan, Minneapolis Fed President, Neel Kashkari and Philadelphia Fed President Patrick Harker)."

"The Fed continued to sound optimistic on US economic and jobs outlook...(but) remained a bit guarded on US price developments."

"It was also notable that the FOMC statement made no mention about US fiscal policy. Overall, the FOMC February statement was measured and did not provide any new guidance on when the Fed will hike rates in 2017."

"We maintain our hawkish outlook for the Fed rate trajectory in the coming years, thanks to the likely expansionary US fiscal policies from Donald Trump even as we expect the Fed Reserve to adopt a pragmatic approach towards the likely Trump fiscal boost, details of which will only gradually become available."

"Therefore, we see the Fed remaining on hold in Q1 2017 after Dec 2016's hike. Thereafter, we now expect three 25 bps rate hikes in 2017 (in the June, September and December FOMC of 2017) from two previously. We adjusted the terminal FFTR higher to 3.5 per cent by Q4 2019 (from 3 per cent previously).''