16 Jun 2015
US: Fed interest rate forecast – Nomura
FXStreet (Barcelona) - Economists at Nomura, offer their forecasts for Interest rates in the US for 2015, 2016, 2017 and in the longer-run, expecting the Fed to hike rates twice this year.
Key Quotes
“For 2015: Our central case is that the median federal funds rate forecast for 2015 will remain at 0.625%, which implies two rate hikes before the end of this year. That being said, some Fed officials seem increasingly concerned over economic growth. Thus, we could see more participants expecting only one hike this year, although that move is unlikely to be big enough to lower the median of dots to 0.375%.”
“For 2016: Although recent data has enhanced confidence in stronger growth in the coming quarters, financial conditions have tightened somewhat. Moreover, many Fed officials have highlighted in their recent speeches that the pace of tightening after liftoff should be gradual. Given the distribution of rate projections for 2016, if one participant who had expected 1.875% for 2016 at the March meeting moved down her/his projection by 25bp, the median of federal funds rate would decline to 1.625% from 1.875%. Therefore, we think that it’s a relatively low bar for the median of rate forecasts for 2016 to inch down by 25bp.”
“For 2017: The pace of raising rates envisioned in the March dots was 1.25ppt per year between 2016 and 2017. That was a little bit aggressive considering the fact that most FOMC participants envision a gradual rate adjustment process. Against this backdrop, we think that it’s more likely that the median of dots for 2017 would be revised lower than higher. Note that the median for 2017 was 3.125% at the March meeting.”
“Longer-run: It’s certainly possible that some participants will lower their longer-run rates forecast – and if one dot came down from 3.75% to 3.50% with all other dots unchanged, the median of the distribution would shift down by 25bp to 3.50%. That being said, we saw little evidence from Fed speeches that members are anticipating significant changes. Thus, any move might not be broad-based even if the medium comes down.”
Key Quotes
“For 2015: Our central case is that the median federal funds rate forecast for 2015 will remain at 0.625%, which implies two rate hikes before the end of this year. That being said, some Fed officials seem increasingly concerned over economic growth. Thus, we could see more participants expecting only one hike this year, although that move is unlikely to be big enough to lower the median of dots to 0.375%.”
“For 2016: Although recent data has enhanced confidence in stronger growth in the coming quarters, financial conditions have tightened somewhat. Moreover, many Fed officials have highlighted in their recent speeches that the pace of tightening after liftoff should be gradual. Given the distribution of rate projections for 2016, if one participant who had expected 1.875% for 2016 at the March meeting moved down her/his projection by 25bp, the median of federal funds rate would decline to 1.625% from 1.875%. Therefore, we think that it’s a relatively low bar for the median of rate forecasts for 2016 to inch down by 25bp.”
“For 2017: The pace of raising rates envisioned in the March dots was 1.25ppt per year between 2016 and 2017. That was a little bit aggressive considering the fact that most FOMC participants envision a gradual rate adjustment process. Against this backdrop, we think that it’s more likely that the median of dots for 2017 would be revised lower than higher. Note that the median for 2017 was 3.125% at the March meeting.”
“Longer-run: It’s certainly possible that some participants will lower their longer-run rates forecast – and if one dot came down from 3.75% to 3.50% with all other dots unchanged, the median of the distribution would shift down by 25bp to 3.50%. That being said, we saw little evidence from Fed speeches that members are anticipating significant changes. Thus, any move might not be broad-based even if the medium comes down.”