The Fed hiked interest rate as widely expected. However, the accompanying statement and the economic projections suggested that the future rate hike path might not be as hawkish as some had anticipated. This resulted in the decline in US dollar and Treasury yields after the announcement. US 2-year yields dropped -8 points to 1.308% whilst 10-year yields plunged -10 points to 2.50%. Equities strengthened. Wall Street gained with DJIA and S&P 500 indices adding +0.54% and +0.84% respectively. In the commodity sector, despite muted reaction on Wednesday, precious metals rallied in Asian session today. The benchmark Comex gold and silver contracts have soared +2% and +3% respectively, in the morning session. Crude oil prices recovered as US inventory fell last week. Meanwhile, EIA's report suggested that, if OPEC adheres to production cut, the global market could see a deficit of -0.5M bpd in 1H17. The front-month WTI crude oil contract added +0.29% to close at 48.86 while the Brent contract added +1.74% to settle at 51.81 for the day.
FOMC raised the fed funds target range, by +25 bps, to 0.75%-1.00% with 9-1 vote. Minneapolis Fed President Neel Kashkari dissented as he favored leaving the monetary policy unchanged. The Summary of Projections (SEP) shows virtually the same macroeconomic outlook. There were only +0.1 percentage point increase in the median forecast for GDP growth in 2018, -0.1 percentage point decline in the assumed long-term unemployment rate (now 4.7%) and +0.1 percentage point lift in expected core inflation for this year. The median dot plot maintained three rate hikes this year and in 2018. The median estimates stayed at 1.375% in 2017, 2.125% in 2018 and 2.875% in 2019, which is the assumed long-term rate. Chair Janet Yellen noted that that the projections have not included potential fiscal stimulus promised by President Donald Trump. She also noted that the Committee discussed on balance sheet policy but no conclusion was reached.
On US oil inventory, the DOE/EIA reported that total crude oil and petroleum products stocks slumped -7.83 mmb to 1338.99 mmb in the week ended March 10. Crude oil inventory slipped -0.24 mmb to 528.16 mmb with stocks dropped in PADD II and III. Cushing stock gained +2.13 mmb to 66.53 mmb while utilization rate dropped -0.8% to 85.1%. For refined oil products, gasoline inventory fell -3.05 mmb to 246.28 mmb although demand slipped -0.15% to 9.25M bpd. Production decreased -3.09% to 9.54M bpd while imports jumped +136.36% to 0.57M bpd during the week. Distillate inventory dropped -4.23 mmb to 157.3 mmb as demand gained +7.77% to 4.41M bpd. Production decreased -1.74% to 4.69M bpd while imports declined -70.3% to 0.08M bpd during the week.
In its latest monthly report, the Paris-based IEA suggested that it takes time to assess the full impact of the OPEC/non-OPEC supply cut deal. According to the agency, "we do not predict OPEC production per se, but if current production levels were maintained to June when the output deal expires, there is an implied market deficit of -0.5M bpd for 1H17, assuming, of course, nothing changes elsewhere in supply and demand. For those looking for a re-balancing of the oil market the message is that they should be patient, and hold their nerve. In the meantime, the volatility that suddenly broke out last week will probably recur, as the IEA has regularly warned". IEA was not too optimistic over the demand/supply outlook, though. It revised lower that demand growth to +1.4M bpd this year, from +1.6M bpd previously.
For the day ahead, US housing starts probably climbed to 1.26M in February from 1.25M a month ago. Building permits might have dropped to 1.26M from 1.29M in January. The Philly Fed index might have plunged to 25 in March from 43.3 in the prior month. In Europe, we would have SNB and BOE meetings. Both are expected to leave the monetary policies unchanged.