Analysts at Rabobank note that the September projections indicated that the FOMC expected to raise the policy rate slightly above the neutral level.
Key Quotes
“This explains why they expected 3 hikes in 2019 – after a 4th hike this year – and another in 2020, before taking a pause in 2021. While the December projections may ‘lose’ a hike, the FOMC likely intends to deliver several hikes before taking a pause. However, that we are getting closer to a pause has been made clear.”
“Today, it was Powell’s remark that the economic effects of the gradual rate increases are uncertain, and may take a year or more to be fully realized that underlined this. In fact, we expect the pause to be the end of the current hiking cycle altogether.”
“The yield curve is likely to have inverted by then which we interpret as a harbinger of a recession. Even so, considering a December hike to 2.50% is only 80% priced in, a further hike in March only 40%, and a hike in June 2019 only 16%, it seems the market is very, very much fighting the Fed – and potentially in for a nasty surprise.”
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