Wall Street weighs in on the Fed's rate hike

Initial reactions

"While some have called raising rates today a 'policy mistake,' we believe that Chair Powell stated his case fairly clearly in the ensuing press conference stating that the further removal of accommodation was appropriate given the current state of the economy." -Scott Buchta, head of fixed-income strategy at Brean Capital

“The Fed was in an awkward position in part because of past miscommunication and also because of exogenous factors beyond their control. The drumbeat to pause the rate hiking campaign was coming from all directions, but the Fed chose to credibly and independently maintain their course of action by raising the policy rate.” -Charlie Ripley, senior investment strategist at Allianz Investment Management

"As expected, market volatility and slowing global growth were not enough to dissuade Fed officials from hiking … Overall, changes in projections and the post-meeting statement were close to our expectations. However, risk assets were seemingly pricing too high a probability of a no-hike or more dovish Fed turn, and equity prices dropped significantly following the as-expected meeting." -Andrew Hollenhorst, economist at Citi

On the stock market's sell-off

"Their dual mandate has been fulfilled for the time being. The Fed believes they are engineering a soft landing, will now pause, but the balance of risks are for possibly another hike. This is just a signal to indicate they are optimistic on the US economy still.The Fed is more dovish and supportive of assets than current market pricing is suggesting." -Jim Caron, global fixed income portfolio manager at Morgan Stanley

"Equity markets were down nearly 12% from October’s highs prior to today’s meeting. Financial conditions had tightened by a magnitude that we haven’t seen since the Fed first raised rates in December 2015, which was then followed by the Bank of Japan taking rates negative, oil prices collapsing, and genuine global recession fears. We felt that would have been enough for the Fed to take a pass at today’s meeting. Markets were priced for such, and the immediate reaction to today’s announcement suggests that markets see the decision as a potential policy error." -Craig Bishop, strategist at RBC Capital Markets

On next year

"Today’s decision does not change our expectation of two additional hikes in 2019, but the timing of those hikes remains uncertain. We believe that hikes in March and September are still the most likely outcome, but that remains a close call." -Lewis Alexander, analyst at Nomura

"The meeting statement eased the forward guidance language slightly, but still indicated that the committee anticipates 'some further gradual [rate] increases.' Chair Powell was also insistent that balance sheet reduction should continue on its pre-scheduled course, noting the committee's view that the current pace of runoff has been smooth and has not been causing problems." -Jeremy Schwartz, economist at Credit Suisse

"We continue to project two hikes in 2019, with a terminal range of 2.75-3.00%–However, we emphasize the uncertainty around the exact timing of these hikes. Continued subdued core inflation removes any urgency for proceeding quickly to (or above) point estimates of neutral. A data-dependent Fed confronting uneven global growth and more volatile risk asset prices will be more cautious than the quarterly march toward neutral in 2018." -Andrew Hollenhorst, economist at Citi

"The deliberate reference to global financial conditions suggests to us that the Committee will hesitate to tighten policy further if heightened volatility in global financial markets persists. For some time we have been projecting two rate hikes by the Fed in 2019, one in March and one in June, before the policymakers put policy on hold for an extended period. That is still our forecast. However, today's policy statement raises the possibility that the timing of rate hikes in 2019 could be delayed if heightened financial volatility continues through the first quarter of 2019." -Kevin Logan, economist at HSBC

On inflation and employment

"Changes to the forecasts for inflation and the labor market generally suggested that FOMC participants expect more moderate inflationary pressures against a backdrop of a labor market that doesn't run quite as hot over the next few years. Core inflation is likely to end this year at 1.9%, just missing the prior median forecast of 2.0% to make for yet another year where inflation misses the 2% goal to the downside." -Ellen Zentner, economist at Morgan Stanley

"Today, I believe the Fed made the right decision for the wrong reasons. With its more dovish outlook, the Fed is too attentive to short-term market moves and not enough to the benefits of running a high-pressure economy. Tight labor markets are resulting in rising labor productivity and more people returning to the labor force, the two ingredients for faster economic growth. Meanwhile, inflation at or even above the Fed’s target does have its benefits." -Ron Temple, head of US equities at Lazard Asset Management

On the dollar and Treasurys

"The high degree of certainty the Fed has displayed that these policies will continue, effectively on auto-pilot at a time that growth is decelerating, has sent a foggy message to the financial markets, which has likely increased uncertainty—hence the rush out of stocks and into bonds and the dollar." -Mark Vitner, senior economist at Wells Fargo

"Above trend near-term growth and the Fed’s desire to keep hiking will lead to upward pressure on front end rates while the market’s focus on downside risks should keep the back end of the US rates curve well anchored … [The Fed’s] decision does not change our view for a weaker USD in 2019. Fundamental and support for USD has all but evaporated. We continue to think that economic and policy convergence next year will push the dollar lower." -Michelle Meyer, economist at Bank of America Merrill Lynch

"We continue to expect the USD will rally in 2019. The Fed may be slowing its pace of tightening, but still looks likely to outpace other central banks in G10. Indeed, with slowing growth evident outside of the US, questions remain whether other central banks will get to tighten at all in 2019. The consensus got the USD wrong in 2018. We think it may repeat this bearish mistake in 2019." -Daragh Maher, head of currency strategy at HSBC

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