Analysts at Rabobank argued that Looking forward, the 3rd rate hike in September looks like a done deal.
Key Quotes:
“What’s more, last Friday’s GDP report is providing more ammunition for the hawks in the FOMC and this could shift the delicate 8-7 balance of the dot plot in favor of 4 instead of 3 hikes this year. Today’s statement also supports the view that the hawks have the upper hand.”
“The most likely date for a 4th hike would be December. However, we will have to wait until the September meeting for an update of the FOMC projections. For now, we stick to our forecast of 3 hikes this year, but if the trade conflicts do not escalate and the yield curve does not invert before the end of the year, a 4th hike becomes a distinct possibility.”
“Unfortunately, that would also get us closer to a recession. In fact, our calculations published last week in When will the Fed invert the yield curve? suggest that June’s FOMC projections – with core PCE inflation rising only modestly to 2.1% while raising the federal funds rate to 3.4% – are a blueprint for a monetary policy mistake. Before the end of 2019, by the 5th hike from now, the Fed would invert the yield curve, and that could signal a recession in early 2021.”
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