Trump’s win didn’t alter U.S. economic forecasts, three rate hikes expected by end of 2017
Donald Trump’s shock White House win has not altered U.S. economic forecasts much, with economists in a Reuters poll expecting three rate rises by the end of next year based on little follow-through on most of the soon-to-be president’s protectionist campaign promises.
The outlook for growth and inflation in a Reuters poll also remains muted despite a Wall Street surge, underscoring a wide gap between how the economy is expected to perform by analysts and what ebullient financial markets are currently pricing in.
The dollar and 10-year Treasury yields have surged in the month since Trump’s victory, on trader expectations of an inflationary boost from planned tax cuts and infrastructure spending, especially with the economy close to full employment.
“The (Federal Reserve) is within striking distance of its inflation and full employment mandate,” said Dan Silver, economist at JPMorgan, who expects an imminent hike followed by two more in 2017, adding: “The risks of a faster normalization of policy, however, have increased.”
“If the U.S. administration enacts a substantial fiscal stimulus while avoiding the more protectionist measures that sometimes have been discussed, the increase in growth and inflation might push the Fed to consider more than two hikes in 2017.”
Several Fed officials have said recently a more expansive fiscal policy would reinforce the case for quicker rate hikes, cautioning that the Trump administration’s economic plans should not be cast as if the economy is in crisis.
The Reuters poll this week of over 120 economists, including all the 23 primary dealers — large banks that do business directly with the Fed — showed they unanimously expect the Fed to raise rates to 0.50-0.75 percent at its Dec. 13-14 meeting.
Fed funds futures are currently pricing in a 95 percent probability of a move next week, converging with the consensus in Reuters polls of a December hike that has held for half a year.
A follow-up increase is forecast for the second quarter of 2017, and then again in the final three months of the year, taking the Fed funds rate to a range of 1.00-1.25 percent, similar to Fed rate setters’ forecasts.
