FOMC: Two More Hikes in 2018?

The Fed Raises Rates

FOMC: Two More Hikes in 2018?

The FOMC decision to raise its target rate to 2.0% was not surprising, but the Fed meeting signaled the likelihood of two hikes in 2018.

The FOMC decision to raise its target rate 25 basis points to 2.0% was in no sense a surprise–the decision has been priced into financial markets for months. But one outcome of the lack of drama was to heighten the focus on nuances of the Fed’s statement rather than on the main event.

But the nuances were bland as well, devolving pretty quickly into a semantic debate about the meaning of the word “symmetric” as it applies to the Fed’s 2% target inflation rate.  In reaction to a question about whether low unemployment could set off a wage-driven inflationary spiral, Mr. Powell said. “There’s a lot to like about low unemployment”.

Chairman Powell also steered clear of comments about trade, in deference to “staying in our lane” by not commenting on issues that are by regulation the domain of the executive branch.

In addition, Mr. Powell barely mentioned the impact of Fed policies on emerging market economies. For another informed view on emerging markets, read Brandywine Global’s recent article: Emerging Markets: Crisis or Opportunity?

One change in procedure:  in the name of better communication, the Fed will have press conferences after each of its eight meetings in 2019, rather than the current four times per year.  Economic reports, however, will be presented only four times.

Western Asset’s John Bellows shares insights on how the Fed manages in today’s market environment, in The Fed Reaction Function.



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