Federal Reserve: Dismissing the sceptics - ING

Financial markets continue to doubt the Fed will carry through with the four rate hikes officials are predicting by the end of 2018, according to analysts at ING.

Key Quotes

“Some scepticism is justified given subdued inflation readings, the potential for an unsettling government debt ceiling crisis in December and uncertainty over who will lead the Fed from February 2018.”

“However, the growth story is looking strong with business surveys at decade-plus highs, while unemployment is extremely low and wages are finally showing some signs of life. These factors should push inflation higher with a softer dollar and the producer price report hinting at pipeline price pressures.”

“With Fed officials also suggesting the prolonged period of low rates is generating financial stability risks while also warning of “somewhat rich” asset valuations, we think the market is being overly cautious in terms of its pricing. If President Trump chooses to nominate a “hawk”, such as John Taylor or Kevin Warsh, as the next Fed Chair then there could be upside to our prediction of a December 25bp Fed rate hike, followed by two more in 2018.”