Fed was more hawkish than many expected - BBH

Reviewing the FOMC statement and Yellen's comments, analysts at BBH stick with their initial impression that the Fed was more hawkish than many expected.  

Key Quotes

‘The willingness of officials to look past the recent economic weakness and softness of prices is important.  It also dropped a reference to the global economy and financial developments being monitored.  Officials are simply more confident of the broad direction.’

“Indeed, as we have suggested before, the Fed is no longer worried about the recovery and expansion.  It is accepted, and moreover, it seems to accept that trend growth has slowed, and that the US economy is growing near trend.  Yellen was willing to dismiss the 3-4 month decline in core inflation to one-off factors.”

“Late in her press conference, Yellen suggested that the balance sheet adjustment could begin "relatively soon."  This is potentially an important tell.  This is a strong hint that it will be initiated after the September FOMC meeting.  This means that the third rate hike of the year, which the median dot plot still suggests will be appropriate, may come in December.  Here the significant caveat is that the economy must evolve in line with the Fed expectations.”

“The US dollar has extended its gains today.  The euro and the Swiss franc have recorded new lows for the month.  Sterling's attempt to recover from the election rout fizzled yesterday above $1.28 after the poor average weekly earnings data.  News today that May UK retail sales were dismal compounds concerns that higher inflation and weaker earnings growth will undermine consumption, and through it, production.”