Daily Insight Fed rate hike this year
Group Economics Macro & Financial Markets Research Maritza Cabezas & Georgette Boele +31 20 343 5618 ,
18 June 2015 • • •
FOMC to hike rate this year, likely in September The “dot plot” with FOMC rate hike expectations shows more gradual pace of rate hikes thereafter Markets further scale back rate hike expectations
FOMC statement more optimistic, but cautious
Markets further scale back rate hike expectations
After two days of meetings, the FOMC statement showed a
Ahead of the Fed the Fed funds for December 2015 were
positive, but cautious tone on the economy. Fed policymakers
around 0.365% and 1.19% for the end of 2016. Afterwards
signalled that the economy is “expanding moderately after
they moved respectively 5 and 9 bp lower. Right after the
changing little in the first quarter” as “job gains picked up”. The
decision, the US dollar moved higher but fell under heavy
statement also signalled the improvement in the housing
pressure afterwards. The 10y US Treasury yields also moved
market, while the inflation language was unchanged.
around 8 bp lower. US equity markets gained somewhat. These reactions reflect that the market is not confident about
FOMC economic forecasts: improvement after slowdown
Fed rate hikes. We expect markets to scale up rate hike
The Summary of Economic Forecasts, suggests that the weak
expectations in coming months, as it becomes clear that the
first quarter growth has led the Fed to lower its GDP
Fed will hike in September. This should support the dollar.
predictions for 2015 to 1.8% to 2% from 2.3% to 2.7% projected in March. The economy, however, is expected to
FOMC individual rate projections
pick up in the coming quarters. The unemployment rate
rate %
forecasts for 2015 are thought to be a bit higher than in March
midpoint of target range level for the federal funds rate
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at 5.2% to 5.3% up from 5% to 5.2%. Chair Yellen mentioned during the press conference that a slight increase in productivity growth would support a somewhat slower pace of
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job gains in the coming time, leading to a bit higher unemployment. Inflation forecasts were broadly unchanged. Rate hike this year, but divided on pace of hikes thereafter
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line with our view, but they have become more cautious on the
off in September, we expect two rate hikes, given that we see a stronger acceleration of the economy in the second half of the year.
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December, while in March there were more officials expecting a half percentage point increase in 2015. Starting with the lift
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pace of rate hikes thereafter. Participants have moved towards one or two quarter percentage point rate increases by
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FOMC participants expect the lift off this year. The median continues to coincide with a rate hike in September which is in
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The “dot plot” which forecasts participants views on the appropriate pace of interest rate normalisation shows that
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Red dots indicate median Source: Federal Reserve
2016
2017
Longer run