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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.”