Article Highlights

  • U.S. Nov headline retail sales up 0.1% vs. 0.3% consensus
  • U.S. core retail sales up 0.2% vs. 0.4% consensus
  • U.S. Nov headline PPI rose 0.4% vs. 0.1% forecast
  • U.S. core PPI up by 0.4% vs. 0.2% forecast
  • Crude oil inventories down by 2.6M barrels vs. 1.4M forecast
  • FOMC hiked interest rates by 0.25% to range of 0.50-0.75%
  • Fed dot plot projected three interest rate hikes next year
  • Fed head Yellen: Change in dot plot is very modest
  • Fed head Yellen: Moderate growth, further jobs gains expected
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Not only did the FOMC raise interest rates as expected, but they also projected three more hikes for next year. No wonder dollar bulls came out to play!

Major Events:

Hawkish FOMC statement – FOMC members donned their hawkish feathers in following up their highly-anticipated 0.25% interest rate hike with projections of more tightening in 2017. Instead of toning down their upbeat outlook, Fed officials seemed optimistic that the U.S. economy can go for a slightly higher pace of growth and lower unemployment down the line.

In their official statement, policymakers had a unanimous vote to increase interest rates in this meeting, citing that inflation has increased throughout the year and that near-term risks to their outlook remain roughly balanced. They also noted that market-based measures of inflation have moved up and that conditions warrant a gradual pace of rate increases.

During the presser, Fed head honcho Yellen reiterated that they’re expecting to see moderate growth in the next few years but that jobs conditions could improve further, highlighting a reduction in labor market slack. She tried to downplay the change in the dot plot from two 2017 rate hikes back in September to three this time by saying that the shift is “really very tiny.” In response to questions about the Trump administration’s fiscal policy plans, Yellen said that she won’t speculate on the Fed’s moves until they get more details but that they already incorporated some of these in their forecasts.

Speaking of forecasts, the Fed upgraded their 2017 GDP forecast from 2.0% to 2.1% and their unemployment rate estimate from 4.6% to 4.5%. Core PCE inflation estimates were unchanged from their September projections at 1.8% for next year and 2.0% for 2018.

Mixed U.S. data – A few hours before the FOMC hoopla, Uncle Sam printed a couple of top-tier reports that are definitely worth taking note of.

Consumer spending turned out weaker than expected, as headline retail sales printed a meager 0.1% uptick versus the projected 0.3% gain while core retail sales indicated a 0.2% increase compared to the 0.4% consensus. Components of the November retail sales report showed that nine out of the 13 components posted gains while purchases at automobile dealers fell 0.5%, its biggest decline since March this year.

Inflationary pressures seem to be gaining traction, as headline PPI showed a 0.4% rise versus the 0.1% forecast while the core version of the report had a 0.4% gain versus the projected 0.2% increase. On a year-over-year basis, this brings the PPI up to 1.4% for November, buoyed by higher prices of food.

Major Market Movers:

USD – The Greenback was the big winner for the day, as the FOMC didn’t sound as cautious as expected and even gave a cheery outlook for 2017.

USD/JPY jumped from a low of 114.75 to a high of 117.40 (+2.32%) after the announcement, USD/CHF is up from 1.0083 to a high of 1.0223 (+1.39%), EUR/USD tumbled from 1.0670 to a low of 1.0469 (-1.88%), and GBP/USD slipped from 1.2723 to a low of 1.2513 (-1.65%).

Watch Out For:

  • 12:30 am GMT: Australian employment change (17.6K expected, 15.2K previous)
  • 12:30 am GMT: Japanese flash manufacturing PMI (51.5 expected, 51.3 previous)

See also:

London Session Recap

Asian Session Recap

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