Tim Duy's Fed Watch

5 Questions for the Fed in 2018

The Federal Reserve anticipates continued monetary tightening in 2018, as it seeks to match 2017’s pace of interest-rate hikes with another three quarter-point moves. As always, however, that projection depends on actual economic outcomes. With that in mind, here are five questions the Fed will face in 2018 as it charts a course for policy:

Continued here on Bloomberg Prophets...

Is The Fed Finishing 2017 On A Dovish Note?

The December FOMC meeting ended largely as anticipated with a quarter point rate hike, making the Fed good on their expectation of three rate hikes for 2017. What about 2018? The Summary of Economic Projections revealed that the median policymaker still anticipates another three rate hikes in 2018. But will they deliver? The answer to that question depends, of course, on the actual evolution of the economy relative to policymaker’s expectations. But at this point, I wouldn’t bet against them on the dovish side.

Continued here...

Expect the Fed to Stand By Its 2018 Outlook

As the Federal Reserve prepares to hike interest rates at this week’s Open-Market Committee meeting, market participants are bidding up short-term rates -- moving toward the Fed expectations of more increases in 2018. That move could continue when the central bank reaffirms its commitment to further tightening next year.

Continued here at Bloomberg Prophets... 

November Employment Preview

The FOMC meeting next week is anticipated to end with a rate hike. Indeed, this is for all intents and purpuses already a done deal. The employment report won’t change it. But the employment report could either add or subtract to FOMC concerns that the pace of activity remains sufficient to push the economy toward overheating sooner than later. The consensus forecast reasonably expects an outcome that leans toward the former, with job gains well above that necessary to hold the unemployment rate constant. That  outcome would leave the Fed committed to their inflation forecast and hence inclined to maintain their projected policy path.

Continued here...

Will Growth Slow In 2018? And Why?

Thinking about the path of policy next year, this quote from Chicago Federal Reserve President Charles Evans (via the New York Times), seems like an important issue:

I think the economy is doing very well. I think it continues to show strength. The second half is looking like very good growth: 2.5 to 3 percent growth. And this is to be measured against our assessment that sustainable growth is more like 1.75 percent. So 2.5 to 3 percent is very strong growth, which should continue to lead to improved labor market activity.

Unless something structural improves to increase trend growth, we’re going to be decelerating to something under 2 percent — and that will still be a pretty good economic picture.

On the surface, this is a fairly straightforward analysis. The supply side of the economy currently grows at roughly 1.75 percent. The demand side is growing at 2.5-3 percent. So it must be true that activity slows to something under 2 percent.

Continued here...