The Fed is not likely to hike rates yet again, at least not in the immediate meeting after the March rate hike, that is, of course, the consensus; however, considering how much these so-called “economists” have gotten wrong over the past few years, if it were up to me, I’d say anything goes, although the likelihood of a rate hike is small, it is still a possibility.
Here are some of the facts that we know:
- Fed Official Kaplan stated that he sees 3 rate hikes in 2017 as good baseline (meaning could be more).
- During Yellen’s Press conference on March 15, she she stated that significant changes in the forecast are not expected and that they were adjusted already during the December meeting. Thus means the Dot Plot chart is relatively accurate, considering.
- Dot Plot Chart shows majority expecting rates to be around 1.50% in 2017 but if hawks were to take charge, 1.75% (or at least 4 rate hikes) is likely
- Neil Kashkari is the only dissenter in March 15’s meeting, who wants to see a detailed plan on (reduction) Fed balance sheet before any more rate hikes. Which means he is not against tighter rates, but just a different approach.
Therefore, with FOMC members unanimous in their voices, future rate hikes are almost certain. If I were to take a guess, I’d peg June and September as the months for the next 2 rates hikes, since both meetings have the summary of economic projections scheduled along with Yellen’s press conference.
That said, it is also important not to fall into the notion that Fed will only announce important rate changes during those full months (March, June, September, December), because I’ve seen the Fed holding press conferences when there were none scheduled with surprise announcements. Obviously that would send out an unwanted desperate signal, which is something that they will try to avoid at all cost.
Lastly, here’s a brief talking points of what Yellen said in her last Press Conference:
- Rate decision was based on economy’s continued progress toward reaching our two mandates
- Rate decision does not represent a change in assessment of economic outlook
- Economy continues to expand at moderate pace over next few years
- Expects job market to continue to improve somewhat further
- Expects core inflation to move up over next couple of years
- Policy remains accommodative.
- Waiting too long on gradual rate hikes could mean faster rate hikes later
- Fed funds rate does not have to rise much to get to a neutral stance; neutral nominal rate is currently quite low- As always, the economic outlook is highly uncertain
- Too early to know how new fiscal policies from Washington will unfold
- Fed policy is not on a preset course
- Discussed balance sheet but made no decision on reinvestment plans at today’s meeting (Kashkari’s dissent)
- Fed wants to use Fed funds rate as key tool on policy
- Fed wants confidence in economy before starting to shrink balance sheet (again Kashkari).