Economists at TD Securities discuss the Federal Reserve interest rate decision and its implications for EUR/USD and USD/JPY.

Hawkish (20%)

“Fed delivers a 25 bps rate hike, and while the FOMC likely will acknowledge the more uncertain economic environment, especially for credit conditions, it will also emphasize credit tightening does not appear to be outsized whereas the inflation dynamic remains significantly out of sync with its inflation mandate. As such, the FOMC considers additional tightening is needed. USD/JPY 138+, EUR/USD 1.08.”

Base Case (65%)

“Fed delivers a 25 bps rate hike, and while the FOMC likely will acknowledge the more uncertain economic environment, especially for credit conditions, it will also emphasize that disinflation has been slower than expected. As such, the FOMC will leave the door open for additional policy tightening, if necessary. USD/JPY 138, EUR/USD 1.09.”

Dovish (15%)

“Fed delivers a 25 bps rate hike, with the FOMC acknowledging the more uncertain economic environment, especially for credit conditions. The FOMC will emphasize that the risks to the outlook have become close to two-sided. As such, the FOMC will be patient to monitor the effects of the cumulative tightening on the data flow. USD/JPY 136.50/00, EUR/USD 1.1050.”