Dot Plot Shows 3 Hikes in 2018: Fade the Consensus

Mish

The Fed hiked 1/4 point with no unexpected discussion. A Dot plot shows Fed participants believe 3 more hikes are coming

The full text if the [FOMC Statement](Federal Reserve issues FOMC statement) for December shows the committee unanimously approved a 1/4 percentage point increase in the Fed Funds rate to a range of 1.25% to 1.50%.

Interest rate paid on required and excess reserve balances to 1.50 percent, effective December 14, 2017.

The statement contained the usual meaningless blather about employment, price stability, and inflation that has been running below target.

The Dot Plot, a survey of interest rate expectations, shows an expectation the Fed will hike to a range of 2.00% to 2.25% in 2018.

I suggest fading the consensus. The yield curve is already close to flat, and with three more hikes it would likely invert. We are closer to the end of these rate hikes than the beginning.

Cartoon of the Day

The 3% and above predictions in the years ahead are a pipe dream. The Trump tax cuts, if they happen, will not spur growth.

The next major move in rates is lower.

Mike "Mish" Shedlock

Comments (10)
No. 1-10
JonSellers
JonSellers

Interesting thoughts here from Mish. For years I've been hearing that the Free Market should be setting interest rates, not the Fed. Now it seems that the 10 year is the cap. So is the 10 year the Free Market? And now we're finally closing in on a Free Market interest rate? If so, who next to blame for the economy?

KidHorn
KidHorn

Let me know when any of these rate hikes lead to higher interest rates for savers.

Realist
Realist

Assuming another 3 years of 2% growth (after the previous 9 years of 2% growth), it would not surprise me to see the fed increase rates slowly over the next few years. And assuming no black swan event, I disagree with Mish's projection of a "major" move lower in rates. The US economy is closing in on labour and capacity constraints that I believe will keep it in the 2% growth range. Just enough to allow for modest interest rate increases.

shamrock
shamrock

Well, your predictions about this years interest rate hikes were wrong all along. Maybe better next year.

MntGoat
MntGoat

Most of the permabear crowd thought the Fed could never even raise rates .25 from zero without crashing the market. Now they are at 1.25%-1.5% and no crash yet. So far the permabears have been wrong (just like they have been wrong about everything else since 2009). But I can't see the yield on the 10 yr treasury going up much from here. Mortgage rates closely track the 10 yr, and significantly higher mortgage rates would do damage to residential and commercial real estate. So ain't gonna happen.

El_Ted0
El_Ted0

If we get 3% growth & 3 rate increases in 2018, it may be time to give the Monetarists some credit for getting us out of the 2008 financial crisis.

MntGoat
MntGoat

El_Ted0....yes if the Fed can get the FF rates to 3 and take the balance sheet down to say $1 trillion without a recession the permabear gold bug central bank hater crowd may have to eat some serious crow (and I will be one of those eating crow!)

truthseeker
truthseeker

For Mish to b wrong imo the yield curves~for example, the 30’s less the 2’s have got to stop flattering ~I can’t see again Mish~I have watched the 30’s minus the 2’s go from a spread of 200 down to 133 down to 95 just here the other day before it bounced a little. The flatter it gets the less liquidity you’ll have encouraging disinflation hurting growth.Also we need the dollar to start falling again to boost exports to help the trade deficit will help growth keeping the stock mkt moving up encouraging people thru the wealth affect to keep spending more of their savings.

truthseeker
truthseeker

Mish am I treated the same way as everyone else or do I have some kind of red flag or leash or probation that stops me from seeing my sentences as I move along?

truthseeker
truthseeker

Ok then I apologize. Yet it seems like in the past I could refer back to what I had already written so I guess it has changed for everyone then r I’m just wrong...