Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Bio
X •  LinkedIn
   Bob Stein
Deputy Chief Economist
Bio
X •  LinkedIn
 
  Full Steam Ahead
Posted Under: Government • Research Reports • Fed Reserve • Interest Rates
Supporting Image for Blog Post

 

As expected, the Federal Reserve raised rates by 25 basis points today.  And at this point, the outlook for the remainder 2018 looks largely determined, with both 75% of Fed officials and the markets pricing in one more rate hike in December to make it four for the year.  What remains to be seen – and the focus for many with today's release – is how policy will develop in 2019 and beyond.
 
The only substantive change in today's statement was the removal of a sentence noting the stance of monetary as "accommodative" and supportive of both the labor market and the Fed's 2% inflation target.  The doves will focus on this deletion as a sign the Fed thinks monetary policy is already neutral, limiting the outlook for hikes in the year ahead. We disagree. Chair Jerome Powell made a point in his press conference that the language removal doesn't change their outlook for continued gradual rate hikes (and that even including today's hike the federal funds rate stands below the long run forecast level of all sixteen committee participants).  The change is little more than an acknowledgement that both inflation and employment have reached or surpassed target levels, and further "support" isn't necessary.
 
Updates to the projection materials (the "dot plots") also reinforce the outlook for higher rates through 2019.  As noted above, FOMC members believe that a fourth hike is appropriate before year-end, while the outlook for 2019 has a median forecast of three hikes (and the financial markets have odds on just two hikes next year). This is little changed from the June forecasts, despite upward revisions to GDP forecasts for both this year and next.  Worth noting is that the Fed has raised GDP growth forecasts with each of the last four projection releases. 
 
While we agree with the Fed's forecast of 3%+ real GDP growth in 2018, we also expect growth next year to be 3%+ as well, while the Fed is forecasting real growth of 2.5%.  Paired with continued strength in employment and inflation at or above 2%, we continue to expect four 25 basis point rate hikes in 2019, just like we expect this year.  And with nominal GDP growth - real growth plus inflation - above 4.5% at an annual rate over the past two years, monetary policy will still not be tight for years to come.              
 
In short, the path towards higher rates remains on track at a steady pace. Thanks to policy changes ranging from tax cuts to regulatory relief and attractive depreciation schedules, the economy is humming along and the "data dependent" Fed has received overwhelming data to prove it. 

Brian S. Wesbury, Chief Economist
Robert Stein, Dep. Chief Economist

Click here for PDF version

Posted on Wednesday, September 26, 2018 @ 4:18 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
 PREVIOUS POSTS
New Single-Family Home Sales Increased 3.5% in August
Previewing the Fed
Existing Home Sales Were Unchanged in August
Housing Starts Increased 9.2% in August
The Growing Deficit
M2 and C&I Loan Growth
Industrial Production Rose 0.4% in August
Retail sales rose 0.1% in August
The Consumer Price Index Rose 0.2% in August
Wage Growth Steps Up
Archive
Skip Navigation Links.
Expand 20242024
Expand 20232023
Expand 20222022
Expand 20212021
Expand 20202020
Expand 20192019
Expand 20182018
Expand 20172017
Expand 20162016
Expand 20152015
Expand 20142014
Expand 20132013
Expand 20122012
Expand 20112011
Expand 20102010

Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.