Fed still on track to hike this year, but gradualism is key

The main takeaway from today's FOMC meeting is that the hurdle for a lift-off in rates appears to be quite low; but the pace of tightening will be very gradual. The FOMC lowered its growth projection for this year to just 1.9%, and yet the Committee still expects to lift rates before the year is over. 

The median projection suggests two hikes this year, although the set of dots believed to capture the FOMC core (Yellen, Dudley, Fischer) is squarely in a one-hike camp. 

The conditions for liftoff remain the same: further improvements in the labour market and reasonable confidence that inflation will move back to its 2% objective over the medium term. 

Chair Yellen noted during the press conference that although we have seen progress on both of these fronts, the Fed would like to see "decisive evidence that that a moderate pace of economic growth will be sustained." 

Assuming flat GDP for Q1, the Fed's forecast implies average growth of 2.5% during Q2-Q4. This, apparently, is enough to give the Fed "reasonable confidence", so long as the labour market continues to improve and core inflation does not weaken.