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(Bloomberg) -- FOMC doesn’t seem concerned about disappointing inflation readings, while focus shifts to the probable start of a balance sheet unwind later this year, analysts say.

• FOMC raised interest rates 25bps and said it expects to begin normalizing its balance sheet this year while closely monitoring inflation
• Fed fund futures showed odds of a September rate hike dropped to near 10% before a rebound to ~25%; odds of a December hike ~45%

KEY VIEWS

• Potomac River Capital (Mark Spindel, interview)
  • It’s clear Fed is holding to mission to keep tightening; question on recent weak inflation being transitory is still “open-ended”
  • Detail about balance sheet changes came sooner than most expected, showing Fed is keen to begin in 2017
  • “The market has taken out the odds of a rate move in September, and I’d push back on that”; FOMC actions lean hawkish
  • The economy is “fine” and Fed is driven by very low unemployment rate
• Vanguard (Roger Aliaga-Diaz, note)
  • Fed likely to hold off on any more rate hikes this year ("with a potential long pause through 2018") as inflation isn’t seen rising meaningfully in 2H from current levels
• CIBC (Avery Shenfeld, note; read more)
  • FOMC shows little concern about recent weak data
  • "Nothing here to change our forecasts for another hike in September and then the balance sheet unwind to start later in December"
• Morgan Stanley (Matthew Hornbach, Bloomberg Television interview)
  • Asked about FOMC putting a balance sheet plan in effect relatively soon, "to us, it means September" and would "take a lot for them to decide otherwise"
  • Sees 10Y UST yield near 2.5% at year-end; "yields are probably not going very much higher from here"
• BMO (Ian Lyngen, Aaron Kohli, note; read more)
  • Fed’s reinvestment tapering plan sets up the central bank to begin unwinding its balance sheet at either the September or December meeting
  • If the Fed reaches the maximum $30b/month cap for Treasuries (with a December start), this means $325b of UST tapering in 2018, amounting to “roughly half of a 25bp rate hike,”
• JPMorgan Chase (Michael Feroli, note)
  • FOMC statement changes “didn’t reflect too much angst about the recent inflation disappointment”
  • Relaxed posture on “inflation misses” also apparent in quarterly inflation forecasts, which “continue to see 2.0% inflation” in 2018 and 2019
  • Overall, statement and accompanying reports “didn’t deliver too many surprises”
• RSM (Joseph Brusuelas, note)
  • Fed likely to focus more on unemployment rate rather than pace of inflation in terms of deciding when to hike
  • Maintains expectations that Fed will hike again in September and start drawing down balance sheet in December
• ING Bank NV (James Knightley, note)
  • Post-FOMC, holding September rate increase prediction intact, yet “this will require further evidence that labor market tightness is generating higher wage growth”
  • Fed’s details on balance sheet unwind show a “very cautious approach”
    • Planned pace of reduction shows “Fed is happy for the economy to effectively grow into a larger balance sheet, reducing the need to offload assets”
  • Remains clear that fed funds rate is key policy tool
• Sage Advisory Services (Mark MacQueen, interview)
  • Fed officials have “optimistic” outlook for rates and balance-sheet unwind
  • With growth at around 2% and inflation even below that, “Fed won’t have scope for all the tightening they have planned”
  • Narrowing gap between 2y and 10y Treasury yields “shows the market doesn’t hold much faith in the Fed accomplishing all these goals”
• BNY Mellon (Marvin Loh, note)
  • Overall message of Fed is hawkish relative to market expectations
  • Balance sheet runoff will be a $300b pace first year, increasing to $600b/year pace by the end of year two, representing a more aggressive approach to portfolio reduction than expected
• Columbia Threadneedle (Gene Tannuzzo, interview)
  • Fed will prioritize balance sheet normalization over an additional interest rate hike in 2017 despite unchanged dot plot
  • Sees normalization beginning in September
• Savos Investments (Jason Thomas, interview)
  • “The balance of risk for traders is to the upside for the dollar,” given the Fed’s guidance and an improving U.S. economy
• Invesco (Noelle Corum, interview)
  • “I would consider this a slightly hawkish announcement” because the Fed outlined balance-sheet plans and signaled its intention to continue tightening

--With assistance from Liz Capo McCormick, Lananh Nguyen, Andrea Wong and Katherine Greifeld. To contact the reporter on this story: Alexandria Arnold in Seattle at abaca3@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Greg Chang