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Bill Evans, Chief Economist at Westpac, suggests that based on their current growth and employment forecasts, the FED is likely to raise the federal funds rate to a peak of 3.125% by September next year.

Key Quotes

“We have extended our profile for interest rate increases by the Federal Reserve’s FOMC by 25 basis points.”

“We now expect the final hike in this cycle to be September 2019 rather than June. This will see the federal funds rate peak at 3.125%.”

“This profile is somewhat more hawkish than current market pricing which expects the federal funds rate to peak at around 2.9% by end 2019.”

“While the FOMC’s “dots” envisage a peak of 3.4%, this assumes a continuation of above-trend growth in 2020. We instead expect growth to decelerate to trend in late 2019.”

“We are expecting a slowdown in employment growth through the second half of 2019 from around 1.6% at March 2019 (six month annualised) to around 1% by year’s end. Furthermore we expect the contributions to growth from housing and durables spending to decline significantly in the second half.”