|

Fed’s decision to hike rates in December 2018 was inconsistent - Wells Fargo

In December, the Federal Reserve rose the Fed Funds rate by 25bp. It was the last hike, at least until tomorrow. According to analysts at Wells Fargo, the mentioned hike seems to have been overly restrictive.

Key Quotes: 

“The SEP (Summary of Economics Projections) released in December 2017 forecast GDP to rise 2.5% in 2018 after rising 2.1% in 2017, inflation to remain flat at 1.9% and the fed funds rate to rise to 2.1% (median estimate) from 1.4%. The Fed’s restrictive monetary policy in 2018 may have been justified by the relatively stronger growth forecasts. Meanwhile, the SEP released in December 2018 forecast softer GDP growth and steady inflation, at 1.9%, but estimated the fed funds rate would rise to 2.9% from 2.1%. In theory, the rising fed funds forecast is inconsistent with muted inflation, which never hit the Fed’s 2% target, and lower GDP growth forecasts. Therefore, our analysis suggests that the December 2018 rate hike may have been overly restrictive and inconsistent given the FOMC’s economic and fed funds rate projections for 2019.”

“In late 2018, the FOMC suggested that the economy was moving more consistently with the Fed’s dual mandate objectives, decreasing downside risk. Thus the FOMC’s decision to adopt a “patient” stance in early 2019 did not come as a surprise to most market participants. In light of headline and core inflation slipping in the first quarter, the FOMC’s pivot to a “patient” stance was justified. In our view, the Fed’s decision to hike rates in December 2018 was inconsistent and seems to have been overly restrictive given the SEP for 2019 suggested a gradual slowdown in growth.” 

Author

Matías Salord

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

More from Matías Salord
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD posts modest gains above 1.1700 as ECB signals pause

The EUR/USD pair posts modest gains around 1.1710 during the early Asian session on Monday. The Euro strengthens against the Greenback after the European Central Bank left its policy rates unchanged and took a more positive view on the Eurozone economy, which has shown resilience to global trade shocks. Financial markets are likely to remain subdued as traders book profits ahead of the long holiday period.

GBP/USD steadies below 1.3400 as traders assess BoE policy outlook

Following Thursday's volatile session, GBP/USD moves sideways below 1.3400 on Friday. Investors reassess the Bank of England's policy oıtlook after the MPC decided to cut the interest rate by 25 bps by a slim margin. Meanwhile, the improving risk mood helps the pair hold its ground.

Gold advances above $4,350 amid renewed geopolitical tensions

Gold is rising back above $4,350 early Monday, helped by renewed geopolitical tensions. Israel-Iran conflict and US-Venezuela headlines drive investors toward the traditional store of value, Gold. 

Week ahead: Key risks to watch in last days of 2025 and early 2026

The festive period officially starts next week, with many traders vacating their desks until the first full week of January, making way for thin trading volumes and very few top-tier releases.

How much can one month of soft inflation change the Fed’s mind?

One month of softer inflation data is rarely enough to shift Federal Reserve policy on its own, but in a market highly sensitive to every data point, even a single reading can reshape expectations. November’s inflation report offered a welcome sign of cooling price pressures. 

XRP rebounds amid ETF inflows and declining retail demand demand

XRP rebounds as bulls target a short-term breakout above $2.00 on Friday. XRP ETFs record the highest inflow since December 8, signaling growing institutional appetite.