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Showing posts with the label Federal Reserve Board of Governors

Probability of Fed Rate Hike is 90.53%

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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

Trump's Tariffs on China will Mainly Hurt the Fed by Hongcheng Chen, Creative Investment Research

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The Federal Reserve’s Federal Open Market Committee (FOMC) meeting statement on March 21, indicated that the Committee voted for a quarter-point increase in federal fund rate. (See:  http://twisri.blogspot.com/2018/03/probability-of-fed-rate-hike-in-march.html ) The Fed seemed to signal, by this rate hike, that a more robust  economic outlook, strengthened, at least in part, due to fiscal policy (tax bill), provides a solid base on which to tighten (increase interest rates) monetary policy more aggressively in the future. The FOMC also sought to cling to a strategy in 2018 , according to the statement , that “ supports strong labor market conditions and a sustained return to 2% inflation .” Top  FOMC  considerations : Inflation targets and the labor market This cautious stance diverged from market expectation in a surprising way: the market seemed to expect more . The accommodative monetary policy and moderate rat