Fed Hikes Again, Modifies Accommodation Language, Plans on 2 More Hikes in 2018

The Fed hiked rates to a range of 1.75% to 2.00% as unanimously expected.

The latest increase, the second this year, will bring the benchmark federal-funds rate to a range between 1.75% and 2%. Officials penciled in a total of four rate increases for this year, up from a projection of three increases at their March meeting.

“The economy is doing very well,” Fed Chairman Jerome Powell said at a news conference after the meeting. “Most people who want to find jobs are finding them, and unemployment and inflation are low.”

Parsing the Fed

The WSJ's Statement Tracker compared the Fed's June Statement with the Fed's May Statement. One could also do this in Word or other word processors.

The key difference was the removal of this paragraph:

"The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."

Dot Plot

The Fed's "Dot Plot" part of the Fed's Projection Materials, show a majority of FOMC participants now expect the Fed to get in two more hikes this year.

I side with the two brave souls who suggest none. Regardless, the key point is we are very close to the end of tightening. The participants expecting 4.0% or even 3.5% rates are in Fantasyland.

Mike "Mish" Shedlock

Comments
No. 1-9
Stuki
Stuki

Every conceivable “system” has been stressed waaaaay past deformation, degeneration and destruction already, by excessively low interest rates for what is now over a century. Particularly so for the past 40-50 years. To the point where now, even 20% for 20 years will only begin to allow them to recover, and again recover into something functional.

The only “systems” that may appear to break under stress by more normalized rates, are the various financialization tumors which have been allowed to grow to outlandish sizes over the past 50 years. Due to the already stressed-beyond-ability-to-cope-by-free-money-for-nothing economic immune system having been knocked out by the overdose of fresh print.

Once Gold is simultaneously used as currency, with the attendant demand rises this brings, AND is trading at meaningfully less than $22/ounce, it may be time to consider lower rates. Until that time, the problem is rates that are too low. Not too “stressful” on anything worth bothering with.

Snow_Dog
Snow_Dog

Where are our engineers in the Mish readership? They know you can stress a system only so much before it breaks apart. Sure, you can move the stress around and pick out where you want the greatest load bearing to occur : Pensions? Housing? Stocks?

The US financial tensile strength will get a good test here, perhaps before Nov midterm elections.

RonJ
RonJ

We have gone from the FED can never raise rates, to one and done and 6 rate hikes since that. How many more to go in total, who knows?

Saw DiMartino Booth say that the FED should be "live" every meeting. Apparently, Powell is going to start doing that next January. Could be that there is a potential for unexpected rate hikes next year.

Carl_R
Carl_R

I agree, Bam_Man. Only if something breaks will Mish be right at 0.

gio1
gio1

fed is spx dependent

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