Fed: Three rates hikes expected in 2018

After yesterday’s meeting, analysts from Wells Fargo expect the Federal Reserve to raise the federal funds rate three times in 2018.

Key Quotes:

“As expected, the Federal Reserve’s Open Market Committee (FOMC) raised the target range for the federal funds rate one quarter percentage point to 1.25-1.50 percent. With the move the Fed has now hiked interest rates three times this past year and five times since they started to raise interest rates at the tail end of 2015.”

“The policy statement contained relatively few changes from the prior meeting. Most of the changes remove language relating to the impact of the hurricanes on the employment and inflation data. The new statement indicates that the bulk of those impacts have passed and will not materially impact the economic outlook. Monetary policy is seen as remaining accommodative and consistent with strong labor market conditions and a sustained return to 2 percent inflation.”

“While the policy statement did not change materially, the forecast for real GDP growth has been raised significantly. The median forecast for 2018 real GDP growth is now seen at 2.5 percent, up from 2.1 percent at the September meeting.”

“Estimates for the long-term federal funds rates were slightly lowered and the range of outcomes are now entirely at 3 percent or less. Takeaways Janet Yellen’s last meeting as Fed chair was fairly ordinary. There is little sense monetary policy is about to deviate from the measured pace maintained the past few years. As a result there was little noticeable market response.”

“We expect the Federal Reserve to raise the federal funds rate three times in 2018. The Fed’s forecast for growth and inflation is roughly consistent with our own and more rate hikes would only be justified if growth accelerated in a way that would push inflation unacceptably higher.”

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