Fed: Next rate hike will occur in December - Wells Fargo

Analysts from Wells Fargo, now believe that the next rate hike from the Federal Reserve will be in December rather than September. 

Key Quotes: 

“We have adjusted our outlook for the timing of the FOMC’s next rate hike and balance sheet reductions. We now believe the next fed funds increase will occur in December rather than September. At the September meeting, we expect the Fed to refrain from raising rates as it officially announces its balance sheet reduction program, which in our view will begin a few weeks later at the start of Q4.”

“Softer inflation is the key driver of our view that the FOMC will proceed with caution when tightening policy over the next few months. Core inflation, as measured by the PCE deflator, has drifted lower every month in 2017 on a year-ago basis and reached its lowest level since December 2015 in last Friday’s release.”

“The Fed has stated that the fed funds rate will remain the primary tool for setting monetary policy, while the balance sheet program will be a secondary tool designed to run in the background. Thus, initiating balance sheet reductions in September while holding off on a hike buys the Fed more time to see how the inflation and economic growth data play out over the second half of the year before resuming its preferred form of tightening. Beginning the balance sheet wind down sooner rather than later would also help cement the program in replace before Chair Yellen’s term ends.”

“We still anticipate one more rate hike before the year is out.”