Michael Hanson, Head of Global Macro Strategy at TD Securities, points out that following the June FOMC meeting, they have revised their Fed call for two more hikes this year — adding December to their expectation for September — and now have one hike per quarter next year as their base case.

Key Quotes

“This path would bring the upper bound of the fed funds target range to 3.25% by September 2019, slightly above our expectation for a 3% FOMC median estimate of the neutral rate.”

“The case for hiking beyond neutral is compelling: unemployment will be well below the NAIRU, GDP growth well above potential, inflation modestly above target, and financial conditions likely more supportive than three-plus years of removing accommodation would normally suggest.”

“There are several downside risks on the horizon, including slowing global growth, emerging market volatility, and trade wars.”

“We expect a data-dependent Fed to look past these external shocks unless they clearly spillover into the US data, as conditions are less fragile and policy normalization is further along than in 2015-2016.”

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