As the real economy is in good shape in the US, the Federal Reserve is on autopilot until the target range reaches 2.75-3.00%, where most FOMC members’ estimate of the neutral rate, according to analysts from Danske Bank.
Key Quotes:
“In line with everyone else, we expect the Fed to raise the target range by 25bp to 2.00-2.25% at next week’s meeting. We do not expect it to be necessary for the Fed to send any new important signals to the markets. We believe the most important parts of the statement will remain unchanged and even if the sentence ‘monetary policy is accommodative’ is removed or changed, it should not matter much, in our view, as it would just reflect reality.”
“With respect to the dots, the Fed will most likely still signal another hike in December (and probably that more FOMC members support this) and three hikes next year (it was divided between two or three additional hikes next year and it would take four members to move it higher). The Fed will also still signal that it is going to raise the Fed funds rate above the longer-run dot. The longer-run dot may be revised higher to 3.00%.”
“Most FOMC members are signalling that the (nominal) natural rate of interest (the rate where monetary policy is neither expansionary nor contractionary) is around 2.75- 3.00% and many, even the more dovish members, have signalled in speeches that the Fed is on autopilot until neutral is reached. That means that the hikes in December and in March seem very likely. Another hike during the summer next year, perhaps June, is also likely.”
“After the Fed funds rate reaches neutral, it is more ‘stop and go’ depending on how the economy is doing and how markets are reacting to monetary tightening. At the June meeting, Fed Chair Powell hinted that the reason why the Fed removed much of its forward guidance was because he wants more flexibility going forward. It is also going to be easier, as every meeting is ‘live’ next year when Powell is hosting a press conference after every meeting. We believe the Fed will be able to continue hiking with one hike in H2 19 (i.e. three hikes next year and a total of five hikes from now until year-end 2019). Markets are pricing in 3.75 hikes from now until year-end 2019 (i.e. including the hike next week).”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD risks a deeper drop in the short term
AUD/USD rapidly left behind Wednesday’s decent advance and resumed its downward trend on the back of the intense buying pressure in the greenback, while mixed results from the domestic labour market report failed to lend support to AUD.
EUR/USD leaves the door open to a decline to 1.0600
A decent comeback in the Greenback lured sellers back into the market, motivating EUR/USD to give away the earlier advance to weekly tops around 1.0690 and shift its attention to a potential revisit of the 1.0600 neighbourhood instead.
Gold is closely monitoring geopolitics
Gold trades in positive territory above $2,380 on Thursday. Although the benchmark 10-year US Treasury bond yield holds steady following upbeat US data, XAU/USD continues to stretch higher on growing fears over a deepening conflict in the Middle East.
Bitcoin price shows strength as IMF attests to spread and intensity of BTC transactions ahead of halving
Bitcoin (BTC) price is borderline strong and weak with the brunt of the weakness being felt by altcoins. Regarding strength, it continues to close above the $60,000 threshold for seven weeks in a row.
Is the Biden administration trying to destroy the Dollar?
Confidence in Western financial markets has already been shaken enough by the 20% devaluation of the dollar over the last few years. But now the European Commission wants to hand Ukraine $300 billion seized from Russia.