The Federal Open Market Committee unsurprisingly held the federal-funds rate at 0.0%-0.25% in its latest statement released on June 16.

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 Federal Open Market Committee (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 US banking coverage by a low-single-digit percentage.

There were still no hints at tapering in the release, and we don’t expect any tapering until the economic recovery is well on its way, at least for a couple more months. This refers to reducing the quantity of bonds bought by the Fed as part of their quantitative easing programs. We expect that any actual tapering will be telegraphed well in advance. We’ll have a better feel for if the Fed is “talking about talking about tapering” once the minutes from the Fed’s meeting are released in early July.