Fed: Expect only two hikes in 2018 – Rabobank

According to Philip Marey, Senior US Strategist at Rabobank, looking ahead to 2018, they think that US core inflation will continue to undershoot the Fed’s 2% target. Therefore, they expect only two hikes in 2018 instead of the three hikes that are implied by the current dot plot, he further adds.

Key Quotes

“Since the third hike in 2017 looks like a leap of faith, we think that the Fed will skip March as an opportunity for the first hike in 2018. Therefore, we expect one in June 2018 and another in December 2018. By trying to squeeze in a third hike before the end of 2017 the Fed may also reduce the probability of delivering three hikes in 2018.”  

“Admittedly, there is a lot of uncertainty about 2018. First, the composition of the FOMC will change dramatically. President Trump can decide whether he wants a hawkish or dovish Fed in 2018. This also implies that this year’s December dot plot is less relevant than usual. Second, a possible tax cut could have a significant impact on the economy and consequently on the Fed’s hiking cycle. Third, although we have our doubts at the moment, if the Phillips curve were to materialize in the coming months that would also alter our forecasts. Finally, in early February Jerome Powell will replace Janet Yellen as the Fed Chair. While his views on rate policy are similar to his predecessor, we have recently seen a couple of FOMC participants pushing for a rethink of the Fed’s current monetary policy framework."