Analyst Note
| Eric Compton, CFA |In its latest statement, released on June 16, the Federal Open Market Committee unsurprisingly held the federal-funds rate at 0.0%-0.25%. Nobody expected a change in rates this meeting; however, there was some anticipation regarding the potential for new commentary around the tapering of asset purchases and around updates to the dot plot and the Fed’s outlook on future rate hikes. Updates to the dot plot were the biggest change, with the median federal-funds rate projection now being 60 basis points by 2023 versus 0 basis points from the last release back in March. In other words, the median FOMC participant now expects roughly two rate hikes by 2023 versus the expectation of 0 rate hikes from the FOMC’s previous release. This is a material change in the outlook, and we expect to update the rate outlook in our banking models to incorporate rate hikes starting in 2023. This is a bit earlier than we previously expected. We expect this to increase the fair value estimate for our traditional U.S. banking coverage by a low-single-digit percentage.