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US Fed meeting: At least three more interest rate hikes in 2018?

Publication Date: 08 Jun 2018 - By ReachX Team By ReachX Team
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FX & Rates Fixed Income/Credit FX USA

As the US Federal Reserve's monetary policy meeting approaches on 12-13 June, one economist reckons three, or even four, interest rate hikes might be on the horizon for the remainder of 2018. 

In a note to clients, Andreas Johnson, economist at Nordic bank SEB, said the US Federal Open Market Committee (FOMC) is widely expected to raise the target range for the federal funds rate to 1.75 to 2.00% at its latest meeting, given accelerating economic activity and inflationary pressures stateside.

“With little uncertainty surrounding the actual rate decision, markets will focus on updated estimates and the outlook for monetary policy in H2 2018. Market reactions may be substantial as scope exists to revise the Fed’s March projections, including its rate path forecast.”

Johnson reiterated SEB’s forecast that the Fed will hike the funds rate three more times in 2018 (June, September and December) and twice in 2019 (March and June). 

"Though our outlook is more aggressive than that indicated by market pricing, we believe the central bank will act more rapidly than is generally expected. Indeed, there is a fair chance that the Fed’s median forecast could change at its June meeting to indicate a total of four rate increases in 2018, although concerns over trade and recent turmoil in Italy may have left some FOMC members thinking it a little premature to step up to four hikes."

"The USD recovery that began in mid-April partly reflects growing expectations of a more aggressive monetary policy. This suggests that monetary policy has regained its status as a driver for the USD and that a hawkish interpretation of the June meeting should send the currency higher.

"The latest minutes suggest the Fed will hike the interest rate on excessive reserves (IOER) by 20 basis points rather than the normal 25bps. This would represent a technical adjustment to bring the effective rate closer to the mid-point of the target range, rather than a monetary policy signal.”  

 

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