Wednesday, December 14, 2016

Quick FOMC Analysis

by Bill McBride on 12/14/2016 04:42:00 PM

The Fed raised the Fed Funds rate 25bp to a range of "1/2 to 3/4 percent".

On the assessment of appropriate monetary policy, one FOMC member sees just one 25bp rate hike in 2017, four members see two hikes, six members see three hikes, and five see four or more. This is an increase of one additional rate hike from previous expectations.

Note: Merrill Lynch published a note after the announcement, and they are forecasting just one rate hike in 2017.

By the end of 2018, 5 members see a total of five rate hikes over the next two years, and three members see six. There are outliers - one member sees just one hike over the next two years, and one member sees 11 rate hikes!

Based on Fed Chair Yellen's comments, most FOMC members are waiting to see the fiscal proposals before incorporating those policies in their forecasts. Yellen said at the press conference: "all the FOMC participants recognize that there is considerable uncertainty about how economic policies may change and what effect they will have on the economy."

So right now I think the Fed is on hold.  Many analysts are thinking the next rate hike might happen in March, but that probably won't give the Fed enough time to consider the impact of various fiscal proposals.  So my guess - depending on the proposals and the incoming data - is the next rate hike might happen in June (or later in the year).