The US Federal Reserve decided against an official short-term rate hike at this week’s meeting—hardly a surprise. But US Treasury yields continue to climb in 2018, and not all the explanations are good news.
There’s not much suspense around this week’s Fed meeting: the fed funds target rate is almost certain to rise by 25 basis points. We think it’s more important not to overlook this cycle’s endgame.
Market volatility has spiked recently, driven largely by growing concerns about rising inflation and interest rates. We think the volatility is exaggerated, but we’re not surprised inflation is rising—and rates along with it.
The tremors that have battered financial markets recently have been nerve-wracking. But remember, the market is not the economy. Economic growth can persist even when markets decline, and that growth can eventually help to stop the slide.
As 2018 gets rolling, markets don’t have great expectations for Fed interest-rate hikes. Based on futures pricing, roughly two small increases are anticipated this year. We think there will be more.
With the US economy humming and the Fed seemingly pushing all the right buttons, it makes sense to expect more of the same in 2018. That means more rate hikes on the way. The question is: How many?
The US Senate approved a tax bill last weekend, and it now appears highly likely that final tax legislation will be passed in the next few weeks. Big changes to the tax rules will impact the economy, taxpayers and financial markets.
Comprehensive, revenue-neutral tax reform could give the US economy a boost. But tax cuts alone are more likely to lead to higher budget deficits than to increased growth.
Jerome Powell, President Trump’s pick to lead the Federal Reserve, is likely to continue the central bank’s gradual retreat from unconventional policy. But the test for a Powell-led Fed will come when the economic cycle turns.
US economic activity is picking up, and as a result, we’ve raised our growth forecasts for 2017 and 2018. What’s behind the good news—and how will it impact interest rates?