Han de Jong, Chief Economist of ABN AMRO, notes that last week, in a ‘Global Perspectives’ session at the Dallas Fed, Jerome Powell, Chairman of the Federal Reserve system, made it quite clear that the Fed is on course to raise rates again in December.
Key Quotes
“No surprises there. What was a surprise is that he mentioned headwinds to US growth in 2019, suggesting that the Fed may pause its tightening some time next year. He identified exactly the factors why we have long thought the Fed will pause, or even end its tightening for this cycle in 2019.”
“Powell said that global trade poses a downside risk to the US economy. He also said that the fiscal stimulus will fade next year and that previous rate hikes are already starting to make themselves felt.”
“An early pause in the tightening cycle would increase the chance of the current cycle becoming the longest period of uninterrupted economic growth on record (records going back to the late 1800s).”
“It remains to be seen to what extent these considerations are going to be reflected in changes in the ‘dot plot’, the projections of FOMC members of future rate hikes.”
“So far, the median projection is for 5 more hikes this cycle. The market is pricing in only 2 to 3, our view has long been 3. If the Fed actually delivers the 5 they are currently still projecting that would require an adjustment in markets which might be painful for risky assets around the globe. If, on the other hand, the median projection comes down a little at the December FOMC meeting, that would be a great relief for risky assets.”
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