As expected, the US Fed left the policy rate unchanged at 1.5% – 1.75%. We feel that the inclusion of the word "symmetric" in its official statement signals the Fed will tolerate inflation rising moderately above 2% over the coming months. However, we expect the Fed to be wary of the risk that inflation will more likely overshoot significantly.

We reiterate our view for a June rate hike which the market has placed a 74% chance, marginally below our expectation of a 75% chance. Besides, we maintain our 60% chance of another rate hike in September while for the fourth rate hike, we are holding to our 40% chance of it happening in December.

• As expected, the US Fed left the policy rate unchanged at 1.5% – 1.75%. In the meeting, the Fed expected inflation on a 12- month basis to run near the committee's symmetric 2% target over the medium term. It is an upgrade from the March meeting where the Fed cited the indicators have continued to run below 2%.

• Inflation data based on personal consumption expenditure (PCE) inflation index hit 2% y/y in March from 1.7% y/y in February. Meanwhile, the Fed's preferred underlying measure, the core PCE which excludes volatile energy and food items, rose to 1.9% y/y from 1.6% y/y in February.

• While steering a middle ground on the inflation and interest rate outlook, we found the Fed noted that the inflation goal was "symmetric". By including the word "symmetric" in its official statement, we feel that the Fed will tolerate inflation rising moderately above 2% over the coming months.

• We expect the Fed will be wary of the risk that inflation will more likely overshoot significantly. We reiterate our view for a June rate hike which the market has placed a 74% chance, marginally below our expectation of 75% chance. Besides, we maintain our 60% chance of another rate hike in September while for the fourth rate hike, we are holding to our 40% chance of it happening in December.

Source: AmInvest Research - 3 May 2018