NEW YORK (Reuters) - The U.S. Federal Reserve raised interest rates on Wednesday, as expected, and left its monetary policy outlook for the coming years largely unchanged amid steady economic growth and a strong job market.

In a policy statement that marked the end of the era of “accommodative” monetary policy, Fed policymakers lifted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2.00 percent to 2.25 percent. It still foresees another rate hike in December, three more next year, and one increase in 2020.

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COMMENTS:

JOSEPH LAVORGNA, CHIEF ECONOMIST, AMERICAS, NATIXIS, NEW YORK

“They took out ‘accommodative,’ but then they clustered more hikes around the median and they edged up their long term, so that’s a little bit hawkish. The question who focuses on what - you never know.

“I found that the reactions post-the FOMC are important. And what the market seems to be doing to me is correct, which is the curve is flattening because the Fed is going to hike more than what’s priced into the forward. You might see equities wobble a bit here because I don’t think they got the joke that the Fed’s going to keep going and when that happens, they break something.

“Look, stocks may be up 20 points tomorrow, but I could just as easily see them down 20. They’re going in December and the fact that ‘accommodative’ came off was just semantic and their forecast is telling you that for a few years, they, meaning the Fed policy-makers, are going to keep rates above where they’re supposed to be.”

ROGER ALIAGA-DIAZ, CHIEF ECONOMIST, AMERICAS, VANGUARD GROUP, VALLEY FORGE, PA

“The Fed’s announcement today, which included no change in the median number of expected rate hikes, and the addition of projections for 2021, shows the committee expects economic conditions to slow towards longer-term trends over the next three years.

“Vanguard believes this is an affirmation of the Fed’s confidence in their ability to engineer a soft landing for the economy without causing a recession.

“Additionally, the removal of the “accommodative” language on policy sent a somewhat hawkish message to financial markets—as this was offset by expectations for stronger growth in 2018 and 2019.

“Given our assessment of an already tight labor market and longer-term downward pressures on inflation, Vanguard maintains our expectations of one more rate hike in 2018 and two more rate hikes in 2019.”

MARK GRANT, MANAGING DIRECTOR AND CHIEF GLOBAL STRATEGIST AT B. RILEY FBR, INC, FT LAUDERDALE, FLORIDA:

“The Fed’s statement was just about down the middle of expectations. Treasuries have rallied slightly as a result. Expectations continue that there will be one more rate hike in December and two, if not three rate hikes, next year. If there was a surprise in their comments, it was that they removed the word, “accommodative” from their release, which has been a part of their recent statements. They repeatedly said that the economy was “strong” and reiterated this view several times. The Fed gave an expected growth rate of 3.10 percent for 2018 which marks a milestone event for the last decade. They were much less bullish in their projections after that projecting a 2.50 percent growth rate in 2019, 2.00 percent in 2020 and 1.8 percent growth rate in 2021.

“It was also quite obvious, without them saying it, that they rejected President Trump’s request for them to stop raising interest rates which is their right as an independent Board as well as it is President Trump’s right, in my opinion, to express his reservations.

“One thing here seems clear to me. The government of the United States, as exemplified by the Jobs Cuts and Tax Bill, is trying to grow the economy while the Federal Reserve Bank, is actually trying to slow it down by raising rates, which increases the costs of both corporate and personal borrowing, as well as mortgage rates.

“It is quite odd, in my view, that our elected government is going off in one direction while the nation’s central bank is headed off in the opposite direction. It seems that we are at an impasse here and I wonder just how long it can or will continue.”

CHARLIE RIPLEY, SENIOR MARKET STRATEGIST, ALLIANZ INVESTMENT MANAGEMENT, MINNEAPOLIS

“I don’t think a lot of people were looking for a complete removal of the accommodative language. It signals to the market that the Fed is really acknowledging the fact that policy is not as accommodating as it was before and they’re getting closer to what they observe as a neutral policy rate.”

“You take a look at the dot plot, thinking about the language that was in the statement, they didn’t make much changes to any of the language around the economic picture since the last Fed meeting. They do acknowledge that (economic) growth and the labor market are in a pretty solid spot, part of this is being driven by fiscal stimulus.”

“But the market doesn’t believe the Fed’s going to get to between 3 and 3.5 percent for the neutral policy rate and that’s what we’re seeing priced into the market. There’s significant gap between what the market expects and what the Fed is projecting for 2020 and beyond.”

“If you look at the bond market reaction, really this was more of a dovish tilt than markets were expecting and markets are reacting in the right direction because of that.”

ALAN LANCZ, PRESIDENT, ALAN B. LANCZ & ASSOCIATES, TOLEDO, OHIO

“It confirmed that the economy continues to respond positively to the tax cuts and deregulation that were implemented, and that the trend will continue to be higher interest rates, but nothing alarming where it could shake the markets. They didn’t give any kind of indication that the increases would be more than what we’ve seen and what investors in general are expecting. And that’s what’s reassured investors. It’s pretty much as expected, which in this case is a good thing.”

HEIDI LEARNER, CHIEF ECONOMIST, SAVILLS STUDLEY, SAVILLS PLC, NEW YORK

“The press release removed the statement that the stance of monetary policy remains accommodative.

“Are we getting closer to neutral? According to the committee, we’ll be above neutral (in terms of policy rate) by the end of next year.

“Unemployment is forecast to remain below the longer-run rate of 4.5 percent through 2021, yet the Fed sees no acceleration in core inflation. Even so, the Fed forecasts an additional 100 bps of tightening between now and the end of 2021.

“Something doesn’t make sense. If core inflation is projected to be close to the Fed’s 2 percent core target, why would the Fed continue to tighten beyond the longer-run rate of 3 percent if above-trend growth isn’t pushing prices higher?”

JASON PRIDE, CHIEF INVESTMENT OFFICER, GLENMEDE, PHILADELPHIA

“The market is already trying to handicap the next hike with an over 70 percent chance of another hike in December. If the Fed does deliver a fourth hike in 2018, it will mark the second year that the Fed has hit its exact forecast for interest rates as conveyed by the dot-plots – the median expectation from its survey of committee members.

“The Fed has been delivering interest rate hikes at a pace this year that is slightly above the market’s original projections from the start of the year, but this pace is justified by the stronger economy, full employment and rising inflation.

“Even with the hikes, the Fed Funds rate, in the ninth year of the expansion, remains below “neutral.” The debate now turns to determining the exact level of “neutral,” IE, where the Fed should stop raising rates so as not to turn tight.

“Bottom line: an additional rate hike may be coming this year, but the economy and markets can handle this pace since policy has yet to truly turn tight.”

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA

“Dovish hike. We have shifted the conversation from how much longer the Fed is going to raise interest rates to trying to figure out what the terminal price of rates is going to be. We are now probably closer to seeing the rate-hike cycle end, which is fantastic.”

“The Fed recognizes I think that interest rate hikes are going to become more punitive from here. They have kept the gradual language. Small- and mid-sized companies in America, the borrowing costs are going to increase, so they are basically giving themselves some headroom to end the tightening cycle a little early if it’s needed.”

“The biggest story is the dollar dropped. I think that’s the most important thing for a lot of investors. The strong dollar has been torpedoing everyone’s international investments for the better part of a year or so. If the dollar tails off here or just levels off, that is very bullish for emerging markets and other places where that dollar strength has really been a problem. With the Fed sort of taking the accommodative language off, it removed the pressure for the dollar to continue to climb.”

MARK MCCORMICK, HEAD OF NORTH AMERICAN FX STRATEGY, TD SECURITIES, TORONTO:

“The Fed removed the word “accommodative” from its statement and to me that’s a dovish signal. It means that the Fed is more or less in a neutral stance and is probably close to being done raising rates even though they flagged a few more hikes. This the reason why you saw weakness in the dollar as a knee-jerk reaction.”

JUAN PEREZ, SENIOR CURRENCY TRADER, TEMPUS INC, WASHINGTON

“I feel that the Fed is doing exactly as Jerome Powell has telegraphed: the economy does not need the Fed’s intervention and removing “accommodating or need to maintain accommodative environment” is a sign that points at confidence in laissez-faire moving forward.”

“The QE, the lowering of rates, the need to influence markets, can be put aside and this goes with our dollar narrative as well: hikes and a strong economy for the U.S. have already been priced-in by traders, but now let’s see if trade tensions are long-term and if hiking rates is indeed sustainable.”

“These doubts along with momentum building on the other side of the Atlantic are factors negatively impacting the buck. Dollar doesn’t need to sink, but it will not keep being propelled by what’s been common thus far this year. The safe-haven status may fade as a source of strengthening.”

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON

“The thing that folks were watching for, which they went ahead and did, was remove the word ‘accommodative’ in regard to their monetary policy. It does seem to potentially indicate they believe monetary policy is becoming less accommodative and getting more towards that neutral rate. To me it is an early signal that perhaps next year they will finish this tightening cycle from that standpoint. It is one of the key takeaways from today’s meeting.

“What you are going to see, again we are talking minutes after the announcement, this idea - the removal of that word accommodative – market participants are taking that as a signal that monetary policy has become more neutral, more normalized. That will signal the Fed is getting near the end of this tightening cycle and it is only September and the market is going to applaud that. You are see seeing a reaction to it here in the early-going.”

MARKET REACTION:

STOCKS: The S&P 500 .SPX gyrated in a narrow range, trying to extend gains then giving some back and last trading 0.02 percent higher. The Dow .DJI also rose further and then turned 0.07 percent lower. BONDS: The 10-year U.S. Treasury note US10YT=RR yield slipped to 3.0629 percent and the 2-year yield US2YT=RR was lower at 2.8229 percent. The spread between the 2 and 10 year <US10YT=RR-US2YT=RR> flattened to 0.24 basis points. FOREX: The dollar index .DXY initially erased a slight gain then firmed to trade up 0.11 percent.