Fed Now Expects Three Rate Hikes In 2017, Sees 1.8% Longer-Run GDP Growth

While the 25 bps rate hike was a given, the question on everyone's mind was how many rate hikes does the Fed envision for 2017. The answer, somewhat surprisingly, is three, an increase of one compared to the September meeting.

This is median assessment of appropriate pace of policy according to the dots:

  • 2016 0.625% (range 0.625% to 0.625%); prior 0.625%
  • 2017 1.375% (range 0.875% to 2.125%); prior 1.125%
  • 2018 2.125% (range 0.875% to 3.375%); prior 1.875%
  • 2019 2.875% (range 0.875% to 3.875%); prior 2.625%

For the longer run, the Fed now expects a 3% Fed Funds rate, (range 2.500% to 3.750%); up from the prior 2.875%.

A comparison of the dot plots:

And another way of seeing it:

Furthermore, according to the FF market, the market is now fully pricing rate hikes in both August and December of 2017.

The Fed's revised forecasts:

Longer-run median unemployment rate 4.8% compares to previous forecast of 4.8%

  • Fed sees 2016 jobless rate median at 4.7% vs 4.8% at Sept. 21, 2016 meeting
  • 2017 median jobless rate 4.5% vs 4.6%
  • 2018 median jobless rate 4.5% vs 4.5%
  • 2019 median jobless rate 4.5% vs 4.6%

Longer-run real GDP median projection of 1.8% compares to previous forecast of 1.8%

  • 2016 median GDP growth 1.9% vs 1.8%
  • 2017 median GDP growth 2.1% vs 2.0%
  • 2018 median GDP growth 2.0% vs 2.0%
  • 2019 median GDP growth 1.9% vs 1.8%

Longer run PCE inflation median at 2.0% compares to previous forecast of 2.0%

  • 2016 median PCE inflation 1.5% vs 1.3%
  • 2017 median PCE inflation 1.9% vs 1.9%
  • 2018 median PCE inflation 2.0% vs 2.0%
  • 2019 median PCE inflation 2.0% vs 2.0%
  • 2016 median core PCE inflation 1.7% vs 1.7%
  • 2017 median core PCE inflation 1.8% vs 1.8%
  • 2018 median core PCE inflation 2.0% vs 2.0%
  • 2019 median core PCE inflation 2.0% vs 2.0%

Longer run Fed funds median at 3.0% compares to previous forecast of 2.9%

  • 2016 median Fed funds 0.6% vs 0.6%
  • 2017 median Fed funds 1.4% vs 1.1%
  • 2018 median Fed funds 2.1% vs 1.9%
  • 2019 median Fed funds 2.9% vs 2.6%

And in funnel format: