Fed: 2019 rate hikes forecast reduced to two - TDS


The central bank will be deciding whether and when to raise interest rates more on the basis of the economy’s latest signs—such as in inflation, unemployment and growth —and less on the long.

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Analysts at TD Securities are reducing their forecast for Fed rate hikes in from three to two as the central bank adopts more of a risk management and data dependent stance, and downshifts to.

The idea, some analysts say, is that the Fed may want to pause in its credit-tightening to assess how the economy fares in the coming months in light of the headwinds it faces.

Contributing to this view was a speech Powell gave last month in which he suggested that rates appear to be just below the level the Fed calls "neutral," where they're believed to neither stimulate growth nor impede it.

Powell's observation suggested that the Fed might be poised to soon slow or halt its rate hikes. For now, most U. The unemployment rate is 3. The economy is thought to have grown close to 3 percent this year, its best performance in more than a decade.

Consumers, the fuel for the economy, are spending freely. In such an environment, the Fed would normally keep gradually raising rates to make sure growth doesn't overheat and ignite inflation. But this time, risks to the economy appear to be rising. From China to Europe, major economies are weakening.

President Donald Trump's trade conflict with Beijing could, over time, undermine the world's two largest economies. Many also fear that the brisk pace of U. The benefit of that stimulus will likely fade in , slowing growth to a more modest pace.

Sohn is forecasting that after nearly 3 percent expansion this year, the economy will grow closer to a middling 2 percent in As a result, like many economists, he predicts that the Fed will raise rates only twice next year.

David Jones, an economist and author of several books on the Fed, goes further: He foresees just one rate increase in Mark Zandi, chief economist at Moody's Analytics, is more hopeful about growth in because he thinks the stimulus from tax cuts and government spending increases won't yet fade significantly.

As a result, Zandi doesn't expect the Fed to slow its credit tightening much next year. But by , Zandi foresees a sharp drop in economic momentum and a rising risk of a recession. Lawrence White, an economics professor at New York University's Stern School, said he expects the Fed to remain mindful of the mistakes of the s, when officials allowed inflation to erupt, requiring sharply higher interest rates and a painful recession to root out. Economists appear unified, though, in the view that whatever the Fed does, it won't be influenced by the attacks Mr.

Trump has made on the central bank and on Powell personally since the stock market began tumbling this fall. In a highly unusual move for a president, Mr. Trump has publicly called the Fed and its string of rate hikes this year "my biggest threat. On Monday, the president reiterated his view via Twitter. Trump tweeted, "the Fed is even considering yet another interest rate hike. Powell, who was the president's hand-picked choice to be chairman, has stressed that the Fed will pursue its mandate of managing rates to maximize employment and stabilize prices, regardless of any outside criticism.

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The Federal Reserve raised borrowing costs for the fourth time this year, looking through a stock-market selloff and defying pressure to hold off from President Donald Trump, while dialling back projections for interest rates and economic growth in By trimming the number of rate hikes they foresee in , to two from three, policy makers signalled they may soon pause their monetary tightening campaign.

Officials had a median projection of one move in Following the decision, stocks erased gains, year Treasury yields fell and the dollar bounced off its lows of the day. Chairman Jerome Powell, speaking at a press conference after the decision on Wednesday, stressed that policy was not on a preset course. So I do think that gives the committee the ability to be patient in moving forward.

The decision lifted the federal funds rate target to a range of 2. The quarter-point hike came after Trump assailed the Fed on Twitter for two straight days, urging it to hold rates steady in the most public assault on its political independence in decades. Answering questions during the press conference, Powell said political considerations play no role in Fed policy making. In addition, the median estimate among policy makers for the so- called neutral rate in the long run fell to 2.

The median projection is for the benchmark rate to end at 3. Those are more acknowledgments that rates are moving closer to the point where policy makers will at least take a break from the quarterly procession of hikes they pursued throughout When taken together, the latest quarter-point move, language changes and shift in rate projections indicate continued confidence in the economy, yet also greater caution over how far and fast the Fed expects to move with future hikes.

As Powell has said, the Fed is now feeling its way forward and will act in line with how the economy performs. Investors have had a more pessimistic view than the Fed, foreseeing one increase at most in , according to interest- rate futures prices. In a related move, the Fed lifted the interest rate it pays on bank reserves deposited at the central bank by just 20 basis points, instead of the usual 25 basis points that would match the quarter-point increase for the fed funds target range.

As with a similar move in June, the action was aimed at containing the effective fed funds rate inside the target range.