Research
Tip: To personalise the research list, click the gear symbol above.


Choose type:


Fast Comment USFed raises rates and more rate hikes on the way

  1. Fed hikes rates, as expected, and signals that further gradual increases lie ahead
  2. Minor tweaks to press statement and FOMC projections: Fed on course for rate hike in December
  3. We expect the Fed to continue to raise rates once a quarter
Fed hikes rates as expected and signals that further gradual increases lie ahead
As widely expected and in line with market pricing, the Fed hiked the target range for its funds rate by 25bp to 2.00-2.25 percent at the FOMC meeting that concluded today. It was the third hike this year and the eighth in this cycle. The median projection for the policy rate was unchanged for 2018-20, signalling one additional 25bp hike this year, a further three hikes in 2019 and one hike in 2020. The initial market reaction was fairly modest. Currently, the market is pricing in one more hike this year and a further two hikes in 2019.
Minor tweaks to press statement and FOMC projections: Fed on course for rate hike in December
The changes to the press statement and economic projection were minor (see table below). The only meaningful change in the FOMC’s statement was the removal of the sentence on maintaining “accommodative “ policy, signalling that the Fed is getting closer to a neutral policy rate setting. Incoming data on economic activity has provided little reason for the Fed to change its outlook from “strong”. The Fed sees 2018 real GDP growth at 3.1 percent, an upgrade from the 2.8 percent in June, without any expected breakout in inflation. From an 8-7 split in June in favour of four hikes in 2018 the FOMC has shifted to a 12-4 split in favour of four hikes. All in all, everything points to the next hike taking place in December, which is almost fully priced in by markets.
We expect the Fed to continue to raise rates once a quarter
The labour market is tight and there are signs that wage and inflation pressures are building. That should keep the pressure on the Fed to continue raising interest rates once a quarter, in our view. We expect the Fed to hike its funds rate in December 2018 and probably twice in 2019 (March and June), but the probability of three hikes in 2019 has increased. By that stage, we think weaker growth will prompt the Fed to move to the sidelines, with the next move likely to be rate cuts in 2020.


Disclaimer
Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

Latest analyses

2018-10-11

Aktuell ekonomi

2018-10-05

Fast Comment US

2018-09-26

Fast Comment US