Our model of Federal Reserve policy estimates the probability that the Federal Reserve will increase interest rates. Our July 3rd Summary shows that the probability of the US Federal Reserve increasing the federal funds rate is 90.53%. While our model needs to be adjusted, as noted below, we remain confident in these results. The first forecast adjustment element are the previous hikes. Recall that in March, 2018, our model predicted a rate increase with a 92.3% probability . The rate increase following the June 12 – 13 FOMC meeting decreases the probability of subsequent rate increases, if only slightly (90.53% vs 92.30%). One precedent for the Fed raising rates in this manner came in 1994, during the Clinton Administration, when the Fed raised rates from February to May at a 25 basis point pace. Interest rates increased from 3.25% to 4.25% in 4 months (FED, 2018). Each successive rate increase adds less to policy impact. Given that the Fed has raised interest rates two time
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