Fed: Model suggest possibility of more than one rate hike in 2017 - Wells Fargo

An econometric model from Wells Fargo, currently suggests a possibility of more than on rate hike in 2017. Analysts warn that a change in the inflation outlook could put pressure on the FOMC. 

Key Quotes: 

“In our past work, we have provided an econometric model to estimate the near-term path of the fed funds rate (…) the results suggest a rate hike in the next six months is likely, based upon the probabilities of inflationary/deflationary pressure, which are utilized in the model and provide a six-month out inflation outlook and therefore a six-month ahead path for the fed funds rate.”

“Our model results suggest a possibility of more than one rate hike in 2017. Why? Since June 2011, the probabilities of disinflationary pressure were higher than the other two price scenarios and the disinflationary expectations scenario was consistent with the accommodative monetary policy stance of the past several years. In addition, the persistent inflation readings below the Fed’s target two percent inflation rate were considered to be one major reason (along with other factors) for only one rate hike per year for 2015/2016.”

“Today, according to our model, the inflation outlook for the near future has changed from disinflation to stable prices. That is, since November 2016, the probability of stable prices is higher than the other two price scenarios and the model suggests a rate hike in the next six-months.”

“Our model indicates a change in the inflation outlook and thereby the potential for more than one rate hike in 2017.”