Analysts at Nomura offered their outlook for today’s FOMC outcome.
Key Quotes:
“At this point, it would be a significant surprise if the FOMC did not raise interest rates at the upcoming September meeting. The economy has remained strong, supported by substantial fiscal stimulus. Recent FOMC minutes and participant comments all point to another step in removing accommodative policy. On policy rate expectations in Summary of Economic Projections, we do not expect any changes to the FOMC’s median policy rate forecasts at the September meeting for 2018-20. The FOMC will likely continue to forecast a total of four hikes in 2018, one more after the expected hike at the September meeting, three hikes in 2019 and one hike in 2020.”
“However, the September Summary of Economic Projections (SEP) will be extended by one year, through 2021. We expect the Committee’s median rate forecast for 2021 to remain at 3.375%, unchanged from the median forecast for 2020. While we do not expect many participants to revise their longer-run policy rate forecast, we expect the median longerrun forecast to rise to 3.0% for a technical reason. The current median forecast of 2.875% for the long-run policy rate is the average of two participant’s forecasts due to an even number of submissions. Richard Clarida’s confirmation in late-August as Vice Chair adds an additional longer-run dot and will likely raise the median by 12.5bp to 3.0%. However, it is important to note that this is unlikely to signal a shift in the Committee’s thinking around the longer-run rate.”
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