It seems as though the Federal Reserve are set to increase the interest rates Wednesday, this followed the response from the central bank on the up rise of inflation and the blooming hiring by U.S. recruiter, this is also the third time such occurrence is happening this year.
On Tuesday, a two-day meeting was commenced by the Federal Open Market Committee and stakeholders are in high expectancy as they wait for the policy makers to make some change to the rates charges on short-term loans. The Chairman of Fed during a press conference on Wednesday seemed to shed more light on the way forward with regards to the impact of this new policy on the economy and investors and economists are keeping their ears wide open on order to get a glimpse of what to expect in 2018.
The results of the 2008 financial crisis is what has led to the various policies that have been brought up and all is poised at making the U.S. economy bud and blossom once more. Since 2015, the rates have been raised seven times and there is no telling how many more increments would be made as they are two more hikes to be effected, one during the meeting and the other in December. As the year comes to an, the central bank has also been working on the closing up the balance sheets of the huge sum of money gotten from government bonds and mortgage-backed securities.
The strategy for making the economy steady has always been a gradual increment in the rate to prevent a sudden rise again. The policy makers, however, have announced four rate increases in 2018 and three in 2019, totaling seven.
The fed watchers strongly believe that the economic situation of the U.S. would give policy makers a better focus. The Reserve Bank of Atlanta’s GDP however forecasts that they would attain growth by a percentage of 4.4 towards the third quarter, which of course is an improvement and add to the record as being the second successive gain following another quarter by over 4 percent. As of August, the employment level remained at the same level, near it lowest rate, since 2002, the wages in turn have their gains increased since 2009. There is, however, an increase in the pressure and demand as the employment levels get stronger and the inflation agreeing with Fed’s internal measure. The FOMC are not having it easy with the signals on interest rates.
Bill Northey, senior vice president at U.S. Bank Wealth Management, stated that for the time being, the tension from trade and geopolitical issues are yet to burden the central’s bank dual mandate for supporting the employment threshold and steady price.
Taking a look at the markets’ views, it can be noticed that the market has totally followed the Fed’s prediction. Without any repercussion, we do anticipate that the prediction would come to completion,” he said, emphasizing that inflation and hourly wages are getting high.
Investors are responding quickly by putting an increment of 2 to 2.25 percent this week, all in a bid to follow the new policies made by Fed. Based on the CME’s FedWatch, Tool opens a new scope for the possibilities of a fourth increase by December with the odds being up to 74 percent.
“It would take something very significant to happen to have the Fed not increase the rates again this December,” said Tom Essaye, founder and editor of The Seven Report.
To an extent, the market cannot tell how the hike would take form in 2019 and what pace it would rise with. Globally, investors are taking a look at the yield curve, and they are saying it is reaching inversion which in turn means the rates on the short-term loan become higher than that of a long term loan. Inflation on the other hand remained unshaken in spite of the economic growth and general fall in unemployment.
Inflation, however, has begun to surface recently as the core personal experditure (CPE) which is the Fed’s inflation measure has met the central bank’s target thrice this year.
Basically, with the method of dot plot and forecast used to meet the expectations of policy makers on internet rates over the coming years, it will also provide them more clarity on the way forward for the hike rates. Fed are also considering removing the use of accommodative in describing their monetary policy, if this holds then it means they will not increase the rates more than thrice next year, Essaye explained.
The chances that the word will be removed is at 50-50 and once they do in 2019 it means we are almost at the end of the rate-hike cycle. The FOMC is set to issue a statement at 2 p.m. EST on Wednesday. Powell is also to address the media at 2:30 p.m. ET.
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