FOMC to press on with hikes, cautiously

Elliot Clarke, Research Analyst at Westpac, suggests that a December hike is in the pipeline for the FOMC, in addition to the further three hikes thereafter, to September 2019.

Key Quotes

“Beginning with their central view on the economy, Vice Chair Clarida made clear that US economic momentum remains “robust, as indicated by strong growth in gross domestic product (GDP) and a job market that has been surprising on the upside for nearly two years”. Chair Powell further added that the FOMC is now close to fulfilling its objective of “maximum employment”, highlighting the structural strength of their economy.”

“As per the November minutes, it is then not surprising that the preference of the vast majority of the Committee remains repeatedly tightening policy over the coming year, albeit in a gradual, data-dependent manner. This caveat recognises policy has a lagged effect on the economy, as highlighted by Chair Powell in his speech, and that neutral is an uncertain concept.”

“Both Chair Powell and Vice Chair Clarida characterised the current stance of policy as “just below” FOMC members estimates of neutral – a 100bps range, from 2.5% to 3.5%. Returning policy to a neutral setting could therefore mean one rate hike or five – depending on the durability of current momentum.”

“We continue to hold that the number of rate hikes from here is likely to be towards the top end of that range. We see four hikes from December 2018 to September 2019. This would result in a peak federal funds rate of 3.125%, a touch above the longer-run neutral rate projected by the FOMC, but below the 3.4% peak that their September forecasts signalled for 2021.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.