Fed: Hike now so we can pause later? - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, explains that the median and mode of FOMC members’ forecasts since December last year have been three hikes in 2017 and as such, a hike in March this year puts the Fed slightly ahead of this forecast timeline.

Key Quotes

“If most participants see an asset run-off later this year and two more (of three in total) rate hikes this year, it might like to get these hikes done before the final quarter of the year, so they can then pause and assess the impact of an asset run-off.”

“The FOMC’s rate projections do not give any indication that they expect to pause rate hikes to evaluate the impact of an asset run-off.  The mode and median forecast are for a further three rate hikes in 2018, consistent with a steady path of rate hikes in conjunction with an asset run-off.”

“It may be the case that FOMC members have not yet fully incorporated the impact of an asset-run-off on their rate forecasts.  As it comes into effect, they may be more willing to slow the path of hikes, below that in their current projections.”

“But there is scope for a pause of up to around nine months in these projections. If the Fed completed three hikes this year by September 20, it could then wait until June-2018 before resuming hikes, and still have time to complete three hikes in 2018 (hiking every second meeting to December 2018).”