Three Fed Rate Hikes in 2017? US economy outlook

Top economists have been recently surveyed to reveal their forecasts for the forthcoming Fed rate hikes, with the respondents anticipating the next move not earlier than in June 2017. Here is their US economy outlook provided.  

19 December, AtoZForex – According to the economists surveyed by the Financial Times, the US central bank will wait six months until it hikes interest rates again. Policymakers will remain cautious in tightening policy before President-elect Donald Trump introduces measures he promised.

US economy outlook

Financial Times surveyed 31 Wall Street economists between the 15th and 16th of December. The survey reveals that the respondents expect the Fed to increase short-term rate only two times, with the first increase occurring in June 2017. According to expectations of investors and traders, Trump together with a Republican-controlled Congress will be willing to implement tax reductions and fiscal stimulus that would boost the US economy. 

But, the survey indicated that economists anticipate Trump to only modestly improve the US growth next year and in 2018. The GDP growth will constitute an additional 0.2 percentage points in the upcoming year. Due to a stimulus package of Trump. Hence, the overall expansion could be 2.2 percent, as forecasted by economists. Furthermore, the contribution of Donald Trump will be 0.4 percent in 2018, driving GDP growth to 2.3 percent.

Markets consider Fed’s forecasts

Apart from these forecasts, around 70% of participants think that the Fed’s target federal funds rate will be at 1.125%. The survey also asked economists about the probability of the recession in the US in the next 12 months. Approximately 40 percent of the respondents mentioned that, in their view, the probability is less than 30% but greater or equal to 20%. 

Financial markets have doubted the path for interest rates that the Fed outlines in its quarterly dot plots. As this year the Fed projected four rate hikes, while delivered only one. But, after the most recent Fed’s meeting, interest-rate futures started to assign a 46 percent probability that policymakers stick to their forecast and increase rates three times in 2017. The move in bond yields indicates that markets are beginning to consider the Fed’s projections more seriously. The yield on the two-year Treasury went up by 1.3 percent, which is the highest level since 2009.

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