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A Dovish Hike
Fed officials raised the federal funds rate 25 basis points at their December meeting to a range of 2.25 – 2.50 percent. Despite recent market volatility and a growing chorus calling for policymakers not to raise rates, market-implied forecasts consistently predicted a 70 percent probability for a rate increase at yesterday’s meeting since September. In his press conference, Fed Chair Powell cited strong economic growth and low unemployment but acknowledged that recent tightening in financial conditions motivated the committee to lower its 2019 forecast for inflation and real GDP growth by 10 and 20 basis points, respectively. Against that backdrop, the committee now forecasts just two rate increases next year.