FOMC Hikes Rates As Expected: Expects 3 Hikes, Faster Growth As Two Dissent

With a 98.3% probability heading in, there was really no doubt the most-telegraphed rate-hike ever would occur, but all eyes are on the dots (rate trajectory shows 3 hikes in 2018), inflation outlook (unchanged), and growth outlook (faster growth in 2018), and lowered unemployment outlook to below 4%. The Fed also plans to increase its balance sheet run off to $20 billion in January.

  • *FED RAISES RATES BY QUARTER POINT, STILL SEES THREE 2018 HIKES
  • *FED SEES FASTER 2018 GROWTH, LABOR MARKET STAYING `STRONG'
  • *FED: MONTHLY B/SHEET RUNOFF TO RISE TO $20B IN JAN. AS PLANNED

The dissents by Evans and Kashkari are significant as they send the signal that there is a significant fraction of the FOMC that would like to put off additional rate hikes until inflation is moving back closer to 2%. You could expect additional dissents in March if the FOMC goes ahead with a hike then, unless inflation rebounds by then.

On the other hand, the median target "dot" for 2020 rose to 3.063% vs 2.875% in September; suggesting even further tightening in store.

The Fed's forecasts improved for growth and unemployment, while keeping inflation unchanged:

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The Dot Plot shows a slightly more hawkish bias to rate trajectory...

  • *FED MEDIAN SHOWS FUNDS RATE 3.1% AT END-2020 VS 2.9% IN SEPT.
  • *FED LEAVES ESTIMATE OF LONGER-RUN FUNDS RATE AT 2.8%

Comparing the Sept and Dec dots we see the following median rate forecasts:

  • 2017 1.375% (range 1.125% to 1.375%); prior 1.375%
  • 2018 2.125% (range 1.125% to 2.625%); prior 2.125%
  • 2019 2.688% (range 1.375% to 3.625%); prior 2.688%
  • 2020 3.063% (range 1.125% to 4.125%); prior 2.875%
  • Longer Run 2.75% (range 2.250% to 3.000%); prior 2.75%

As for the projection interval, the forecast ranges narrow for 2018, 2019 and longer-run; widens for 2020:

  • 2018 range 1.125%-2.625% vs 1.125%-2.725% in September
  • 2019 range 1.375%-3.625% vs 1.125%-3.375% in September
  • 2020 range 1.125%-4.125% vs 1.125%-3.875% in September
  • Long-run range 2.25%-3% vs 2.25%-3.5% in September

More specifically, while now two FOMC members expect the fed funds to rise above 4% in 2020, the 3.5% Long Term "dot" is now gone as the lone "long-term" optimist has disappeared.


 

Notably, as Bloomberg points out, the dot plot implies that a growing number of Fed officials think policy will need to be restrictive in 2020 - presumably to tamp down on inflation risks amid an overheating economy. Eight 2020 dots are above even the highest estimates of the long-run dot.

*  *  *

Was there any doubt?

Since the last FOMC meeting in November, gold is the big loser and stocks the big winner.

 

At the same time, the yield curve has collapsed since the last FOMC Meeting...

Though this morning's CPI did lower next year's market view...

 

Full Redline below:

Comments

NickyGall Wed, 12/13/2017 - 14:05 Permalink

Here is an article that explains why the Federal Reserve admits that its $4 trillion QE experiment was a failure: https://viableopposition.blogspot.ca/2017/10/the-effectiveness-of-quantitative.html  
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Over the long-term, the risk associated with the Fed’s long-term monetary experiment is likely to prove to have created more problems than it solved.

ThanksIwillHav… Wed, 12/13/2017 - 14:14 Permalink

Why are savings rates still stuck near zero???   The FED is raising Interest on Excess Reserves rate, not the traditon of selling t-bills into market to extract cash.   In fact, raising IOER rate will only give crony banks more money and provide more fuel to Wall Street casinos.  Think of it as Stealth QE.  We have gone all bullshit.

Lady Jessica Wed, 12/13/2017 - 14:15 Permalink

The illusion that the Federal Reserve, by raising or lowering interest rates, has any effect whatsoever on spurring growth or preventing inflation is ‘our most prestigious form of fraud, our most elegant escape from reality…only in innocence does it [the Fed] control general consumer and business spending'.

Harry Lightning Wed, 12/13/2017 - 14:22 Permalink

The dishonesty of the imbeciles is arresting. They say they need to tighten three times in 2018 yet they prject the Unemployment Rate will drop further as they are tightening. They use this inflation indicator, the PCE, which is chosen because of all indicators this one makes inflation look most benign. So using the bogus indicator, they claim inflation remains below 2%. Yet for the entire year of 2017, the trailing 12 month Consumer Price Index has run above 2% and stands now at 2.5% with no indication of dropping.The Fed is already behind the market and will suffer a huge credibility proble as inflation moves towards 3 and then 4% in 2018. Their belief that they can stretch a tightening cycle out along many years and still achieve reductions in inflationary pressures will be the next error that weakens and kills Fed credibility. In the end they will panic as they always do, and finally tighten all at once to way beyond where they would have been had they been serious about contolling economic growth. The over-tightening they will engineer is what will cause the next economic problem, as it always does from these clowns.Yet the lap dogas of the Fed are out in full bloom this afternoon buying stocks and bonds as if they are going out of production and these are the last ones you'll ever find. Imbeciles in the stock market who never learned not to fight the Fed - they will see why that maxim is true once the Fed panics and overtightens a year doewn the road. And the real fools in the long end of the Treasury market, buying long bonds at 2.75% with inflation at 2.50%. Didn;t they ever learn that traditionally long bonds trade 230 basis points over 12 month trailing Consumer Prices Index increases, or do history no longer repeat itself ? In all the years I have been watching financial markets, never has there been anywhere near as much stupidity as I see today It will destroy the global economy when it all comes back to reality. And its all the cause of one main player, the Federal Reserve, who provided the excess reserves for these fools to spend. In the end, when all of these markets finally realize their foolishness and get back to levels that make sense, when phony digital currency beomes the laugh of the last 400 years replacing tulips, well at that point when the global economy is in ashes, the people at the Federal Reserve who permitted the monetary creation that fed these manias will have to be rounded up and imprisoned for the incompetence and malpractice they exhibited in the conduct of their work overseeing the US economy.

gm_general Wed, 12/13/2017 - 14:44 Permalink

I found out a likely reason for the supposed growth in the US economy. The Dec. Fed Flow of Funds report came out last week, so I took a look at the page for Total Outstanding Debt By Sector. As it turns out, in Q3 alone the US total debt (public and private) added over $1T - that is in one quarter, its not an annualized rate. It went from $67T to $68T in one freaking quarter. This rate of increase has not been seen since the 2007-2008 debt pile on. Every sector but state debt piled it on, which I find odd - states are in big trouble too.

rejected Wed, 12/13/2017 - 14:59 Permalink

Whoopee!!!!! A whole quarter of a point.  Boy, the economy must be sizzling. Savers will marvel at their incredible income.Americans will cheer their new found wealth! 

Blue Dog Wed, 12/13/2017 - 14:59 Permalink

The numbers are all nonsense. Real GDP is declinging. Real inflation is 7%. Real unemployment is at least 20%. There are almost 100 million people out of work when you count the officially unemployed and those out of the workforce. The Fed isn't going to unload it's balance sheet. It's buying stocks, bonds, and real estate. Is it doing that just to prop up the price or is it's real goal to buy everything in the country that has value?

california chrome Wed, 12/13/2017 - 17:01 Permalink

Shows what a control freak Yellen is to raise rates at her last press conference.  Lol. Unreal.The dissents by Evans and Kashkari are significant as they send the signal that there is a significant fraction of the FOMC that would like to put off additional rate hikes until inflation is moving back closer to 2%.Was hoping the Trumpster would select Kashkari as the next Fed Chair but his hires make one wonder if he still thinks he's on the Apprentice.  Oh well, still winning.