Analysts at TD Securities are reducing their forecast for Fed rate hikes in 2019 from three to two as the central bank adopts more of a risk management and data dependent stance, and downshifts to a slower pace of rate hikes next year.
“We look for hikes in June and December as our base case, but data dependence means greater uncertainty around the expected policy path. We also expect the Fed to conclude its balance sheet run-off at the October FOMC meeting.”
“Key factors that will determine when the Fed hikes in 2019 include the inflation outlook, which has softened recently, as well as the evolution of risks around trade policy, fading fiscal stimulus, and slowing global growth. We expect the Fed to keep an eye on financial conditions as well, but not attempt to put a floor under risk assets.”
“We change our rates forecast to reflect two Fed rate hikes in 2019. This also lowers our 10y forecast slightly, which we look to peak in H1 and then decline to end 2019 at 3%.”