FOMC: On track for a rate hike - Nomura

According to analysts at Nomura, we appear to be on track for a rate hike at today’s FOMC meeting and the focus now is largely on the medians of FOMC participants’ target federal funds rate projections (the “dots”) in the Summary of Economic Projections (SEP).

Key Quotes

“Given recent remarks by FOMC participants, we think the dots distribution will shift up across the forecast horizon. We believe more likely than not the medians will rise for 2018-20 but this remains a very close call.” 

“Recent remarks, particularly by Chair Powell and Governor Brainard, have highlighted an improved economic outlook as headwinds appear to be shifting to tailwinds. Tailwinds include synchronized global growth, strong aggregate demand, still-accommodative financial conditions and, most important, substantial fiscal stimulus in an economy close to full employment. Governor Brainard’s speech on 6 March was particularly notable given her hawkish shift.”

“More likely than not, the median dot will imply four hikes in 2018 (up from three) and three in 2019 (up from two and a quarter). However, we do not expect the median of the longer-run dots to change from its current level of 2.75% although upward adjustments to some dots may be possible. Elsewhere, relative to the December SEP, we expect upward revisions to growth forecasts for 2018-19 but a downward revision for 2020 as we think the boost from fiscal policy will wane that year. Moreover, we expect downward revisions to the unemployment rate forecasts for 2018-20 from their levels in December.”