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The US dollar dropped last week after the FOMC made dovish sounds. Some reached a conclusion that the Fed under Powell will not raise rates anytime soon. Nevertheless, the team at Nomura still see three rate hikes next year and they have a few reasons.

Here is their view, courtesy of eFXnews:

Nomura Research made a change to its Fed call and now expects more interest rate hikes next year and in 2019.

“With the combination of momentum in aggregate demand, tightening labor markets, some evidence of a rebound in inflation, and resilient financial conditions, we think the FOMC will raise short-term interest rates somewhat more over the next two years than we had expected before.  Beyond the expected hike in December, we now expect three hikes next year – in March, June, and December – and one more hike in June 2019.

That said, we do not expect FOMC to raise its range for the federal funds rate above 2.25-2.5%. Note that we think this would still be a small overshoot relative to the longterm level of the “neutral” rate. We do not expect any change to the current trajectory of the FOMC’s balance sheet policy,” Nomura argues.

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