Finally

The market was expecting a so-called ‘dovish hike’ – for the Fed to lift the overnight interest rate, while emphasising that this will be a very timid tightening cycle with interest rates low for some time.

There was some initial surprise that the Fed had not significantly lowered its future forecasts for the Fed Funds Rate.  These still sit around 1.40% for the end of 2016 (implying four hikes next year) and around 3.5% for its longer run assumption.

As it turned out, the dovish tone from the Fed came from the repeated emphasis within the press release on current US inflation remaining below target.  The Fed noted that market measures of inflation expectations have fallen, that it is monitoring inflation very closely, and is only “reasonably confident” of inflation rising to target.

By clearly setting out that there is a risk that inflation will remain stubbornly low, the Fed has opened the door to delivering fewer rate hikes in 2016 should inflation not materialise.