More Cautious Than Hawkish
As widely expected, the FOMC pulled the trigger on a rate hike at its December meeting. However, they did something unexpected as well: the FOMC sent a hawkish signal about their future plans by increasing their â€dot plot†projections for 2017 rate hikes from two to three.
MIG is inclined to discount the hawkish signal in the rising dot plots. In fact, Fed chair Janet Yellen encouraged exactly this at her press conference following the meeting. Instead, we see a Fed that is more cautious in its outlook than hawkish.
In our view, the Fed’s forecast of three rate hikes in 2017 will not materialize and there will be no more than two rate increases next year. There are several compelling reasons to support this:
- A stronger USD will rekindle deflationary forces and dampen rising inflation
- Tighter financial conditions will keep the “twin engines†of growth from overheating
- The FOMC will retain its dovish bias
MIG provides investors with clarity on markets, macro and monetary policy. It combines a rigorous analytical approach with unique insight into central banks based on over a decade of experience. Clients appreciate our clear and accessible communication style
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