Barclays expects December FOMC meeting to bring us the 25bp raise in the interest rates. Moreover, the bank sees two rate hikes in 2017 and 2018. Are markets ready for Fed rate hike?
December FOMC meeting expectations
Markets expect the FOMC policymakers to raise the borrowing costs across the US by 25bp. Barclays, British multinational banking, and financial services company, is also agreeing with the market consensus. Moreover, the bank believes that the markets anticipate Fed fund futures.
According to bank’s view, the 25bp raise decision has been already widely foreseen by financial market participants. Thus, Barclays stated they do not expect any significant effect from the December FOMC meeting. The bank analysts argue that material effect can take place in case Fed decides to strongly signal on the future monetary policy path.
FOMC members will also release updated economic outlook. This includes Committee’s projection for inflation and economic growth over the next 2 years. Moreover, the report comprises a breakdown of personal FOMC member’s interest rate projections.
What is for fiscal policy?
Barclays expect an average of two rate hikes in 2017 and 2018. The bank highlights that such forecast is mirroring their overall view on the US economic data. In regards to any potential fiscal easing and associated impact on the forecast, past records propose that the central bank will not price in any shift in fiscal policy that far in advance.
Barclays is expecting the Fed to provide guidance based on speculation in line with Central Banks. However, the bank stated that it would wait until the announcement of specific policies before evaluating its effect on the US economy.
Additionally, the bank expects Fed Chairwoman Janet Yellen to stabilize the decision to hike the rates with a dovish message of a shallow expected policy pace. Moreover, Barclays expects Ms. Yellen’s willingness to test the potential advantages of running a ‘high pressure’ economy.
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