Fed Hikes 1/4 Point as Expected: Dot Plot Indicates One More 2018 Hike Coming

In its FOMC statement, the Fed says the economy continues to strengthen, unemployment is low, and spending is strong.

The Fed hiked rates a quarter point to a range of 2.00% to 2.25%. Here is the FOMC Statement.

Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.

Dot Plot

The Dot Plot, a measure of future rate projections, shows a near-term likelihood of another hike this year followed by increasing uncertainty.

One participant thinks the Fed is done hiking. Another thinks the Fed will hike to over 4.0% percent by 2021.

Recession When?

Judging from the plots, it appears at least some of the participants are penciling in a recession in 2021. I would be extremely surprised if we go that long.

Mike "Mish" Shedlock

Comments
No. 1-7
Blacklisted
Blacklisted

Why do you remain hoodwinked by the Fed's rationale? They kept rates to low for too long because of international pressure, not because of economic weakness; and they are raising because of pension problems, not the strong economy. Wake up!

Casual_Observer
Casual_Observer

One more hike will be the straw that breaks the camel's back via the bond market. Especially the high yield corporate bonds which are mostly junk.

andyinmiami
andyinmiami

The expected value for year end rates are as follows: 2018 2.313%, 2019 3.016%, 2020 3.281%, 2021 2.469%. The FOMC expects three quarter point rate cuts in 2021. Like you said, I'd be surprised if it took that long. My bet is the peak of economic activity is next Spring or early Summer.

lol
lol

housing ,cars/trucks will continue near recessionary levels while prices soar!Economy that produces nothing (less than nothing)but consumes everything (on credit)cannot handle any rate increase.Deficit will rise ….wait for it ……….one trillion dollars on first day of new budget year!

JonSellers
JonSellers

I can see 2021. I tend to think globalization and rapid growth in EMs has the effect of muting the normal American business cycle. On the downside, the longer business cycles promote more speculative bets, especially debt-driven, so any recessions may be much deeper than found in the past.

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