FOMC determined to deliver third rate hike - Rabobank
|In view of Philip Marey, Senior US Strategist at Rabobank, although puzzled by this year’s decline in inflation when unemployment has dropped below its own estimate of the NAIRU, the FOMC seems determined to deliver its third rate hike of the year on December 13. However, by trying to squeeze in a third hike before the end of the year they may also reduce the probability of delivering three hikes next year, he further adds.
Key Quotes
“The Fed seems intent on hiking in December, despite admitting that it does not have a clue why inflation remains absent. In fact, it is clinging to the belief that wage and price pressures will strengthen as slack in the labor market continues to decline. Of course, delivering a third hike before the end of the year would fulfill the Fed’s promise contained in the dot plot for the first time since the start of the hiking cycle. In 2015 and 2016 the Fed had to backtrack on its promises, so now they seem intent on restoring the credibility of the dot plot.”
“Therefore, at the meeting on December 12-13 we expect the FOMC to change the target range for the federal funds rate to 1.25-1.50%, from 1.00-1.25%. Since this hike has been well telegraphed by the Fed, markets are likely to focus on the fresh set of projections, in particular the dot plot. Do the FOMC participants still expect to hike 3 times in 2018? The meeting will be concluded by Chair Yellen’s final post-meeting press conference. Since she will leave the Fed in early February, her words may not carry the weight that they had previously.”
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.