Fed: Expect two additional rate increases this year - Nomura

Monetary policy Events last week with respect to possible spillover effects from the worsening financial outlook in Turkey could weigh on FOMC officials if turmoil persists over the near term, according to analysts at Nomura.

Key Quotes

“However, we believe the bar is high for any signal of a potential pause in rate hikes. Chair Powell has yet to confirm his appearance at this year’s Jackson Hole conference (on “Changing Market Structure and Implications for Monetary Policy,” 23-25 August) but the annual gathering of policymakers, academics and journalists could provide an opportunity for him, and other Federal Reserve policy makers, to comment on recent developments.”

“Chicago Fed President Evans, a dove in recent years, indicated on Thursday that he believes a somewhat restrictive monetary policy stance will eventually be warranted given strong economic momentum and fiscal stimulus. His comments, somewhat similar to his more hawkish shift in July, could indicate that while the Committee continues to see trade policy as adding uncertainty to the outlook, economic fundamentals remain firm enough to support further gradual rate increases. Evans also indicated that declines in inflation expectations, long a concern of more dovish participants including Governor Brainard, could pick up as the economy remains strong.”

“Taken altogether, the hawkish shift from Evans – and Governor Brainard’s more hawkish turn earlier this year – indicate that St. Louis Fed President Bullard and Minneapolis Fed President Kashkari may represent the only participants who remain reluctant about additional rate increases in 2018. We continue to expect two additional rate increases this year, in September and December, with two more in 2019 before the FOMC takes an extended pause.”