Fed, economists, and investors all on same page
As the Federal Reserve (FED) begins its two-day meeting today, investors and economists have finally begun to agree with the pace of change it set out over a year ago. Originally, the FED had hoped to pursue four interest rate hikes throughout 2016, but slow global growth and a number of troublesome geopolitical events held it back. This year, everyone seems to agree things are back on track.
A Bloomberg survey of 45 economists from last week now suggests we should see three hikes this year: March, June, and December. That’s an increase from the previous month, and in line with the central bank’s forecast from December. Investors agree, with the probability of three or more hikes this year reaching over the 50% threshold for the first time on March 1.
Thomas Costerg, senior U.S. economist at Standard Chartered Bank, said:
“The Fed is a happy camper. For once, the Fed and the Street seem to be aligned. That’s good news because it means volatility can remain low. There’s no need to alter market expectations.”
We have a flurry of positive economic data from the first two months of the year to thank for this development – the latest piece of which was a positive jobs report released on Friday. FED officials have been making the right noises too, with the latest installment coming from Janet Yellen herself. At the start of March she said another rate hike “would likely be appropriate” in March if the economy stays on track.
According to the same survey, economists are broadly positive about President Trump’s economic policies. If they’re right about the impact these policies will have, it adds further credibility to the likelihood of further hikes later in the year.
The Federal Reserve’s Open Market Committee is slated to meet today and tomorrow. In addition to further rates hikes, they will discuss the state of the economy and produce a fresh barrage of forecasts for the coming year.
The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.
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