UK Markets closed

Economists are Optimistic that 2018 Rate Hike Will be Spectacular

Guest
The U.S economy is currently in a suspended state of uncertainty as the pendulum of President Trump’s proposed tax reforms continues to swing back and forth. The uncertainty in the U.S. economic landscape is precipitating a weakness in the U.S. dollar in the global markets. The fact that the U.S. Federal Reserve appears to be … Continue reading Economists are Optimistic that 2018 Rate Hike Will be Spectacular

The U.S economy is currently in a suspended state of uncertainty as the pendulum of President Trump’s proposed tax reforms continues to swing back and forth. The uncertainty in the U.S. economic landscape is precipitating a weakness in the U.S. dollar in the global markets. The fact that the U.S. Federal Reserve appears to be confused about what it plans to do with interest rates is also weakening the position of the greenback against rival currencies.

It is somewhat difficult to predict how the political circus surrounding the tax reforms will play out. It appears that the government is intent on taxing people rather than companies, you can trust sensational journalism to play to the gallery. Nonetheless, economists seem to agree that there will be a decisive action on the U.S. rate hike situation by December.

Economists expect Fed to decide on rate hike next month

A survey conducted by the Wall Street Journal shows that economists are certain that the Fed will increase the interest rates by December. According to the Fed Watch Tool, traders are pricing 91.5% for a rate hike in the next month. The economists also have a strong conviction that the Fed will raise interest rates about three more times in 2018.

Out of 59 respondents to the survey, 56 economists (95% of respondents) said that they expect the Fed to increase interest rates in December to some point between 1.25% and 1.50%. In September, only 75% of respondents were optimistic that the Fed would increase interest rates next month. Manual Dawson, a Weiss Finance analyst posits that the prevailing market sentiment about a December rate hike is spot on. In his words, “a December rate hike is a perfect opportunity to raise rates because the economy will be enjoying tailwinds from the holiday season – the Fed will surely not want to miss this opportunity”.

Going forward, about 58% of economists who responded to the poll expect the first rate hike in 2018 to happen when the Fed meets in March. However, about 25% of the respondents think that the Fed might want to wait until June 2018 before it goes ahead to raise interest rates.

Irrespective of the disagreement among economists on when the Fed is likely to raise rates in 2018, the economists seem to agree that the Federal Reserve would have found ways to raise the federal-funds rate by an average of 2.07% by December 2018.

Interestingly, traders in the U.S. financial markets seem to agree with economists that the rate hike scene can still experience an increase in interest rates before the end of this year. Federal-funds futures are currently indicating a 91.5% odd that the Fed will increase interest rates when it meets in December. You will remember that the raised interest rates to a range between 1% and 1.2% when it met in June. Yet, the fed decided to leave interest rates steady during its September meeting.

However, the minutes of September policy meeting of the Federal Reserve showed that there’s enough room to sneak in an additional rate hike before the end of this year. Nonetheless, most of the fed officials that will make a decision on interest rates will be paying special attention to how the inflationary trend pans out in the next couple of weeks.

This article was originally posted on FX Empire

More From FXEMPIRE: