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Fed: More uncertainty surrounds 2019 – Wells Fargo

Analysts at Wells Fargo, expect the Federal Reserve to raise rates next week and continued with 25bps hikes per quarter through the third quarter of 2019. 

Key Quotes: 

“The FOMC is all but certain to take the fed funds rate up another 25 bps at next week’s meeting. Currently the market places the chance of a quarter-point hike at 98%. That will make any communication tweaks about future rate hikes the main draw on Wednesday.”

“There are likely to be few changes to the post meeting statement. Recent indicators point to growth remaining “strong.” Risks still look to be balanced as the Fed navigates the tailwinds of fiscal stimulus with the potential headwinds of trade dislocations and volatility in emerging markets.”

“While the statement is unlikely to provide much new insight, updated economic projections should help bring the near-term rate path into view.”

“More uncertainty surrounds 2019. The additional two rate hikes before the end of the year would bring the fed funds rate to 2.25%-2.50%, only about 50 bps below what most Fed officials estimate to be “neutral”.”

“We are in the camp that the FOMC will carry on raising the fed funds rate 25 bps points once a quarter through Q3-2019. At that point, the fed funds rate is likely to be slightly restrictive based on FOMC estimates. Markets, however, are more skeptical. Futures point to the fed funds rate rising to about 2.75% by next September.”

“The timing and degree of policy changes next year come with an added degree of uncertainty as we reach a critical stage of the cycle. Not only are there questions about neutral, but press conferences after each meeting and new members, including Vice Chair Rich Clarida this month, may also sway the timing and path of policy changes.”

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