FOMC: Moving in the right direction - Wells Fargo

According to analysts from Wells Fargo, yesterday’s FOMC policy statement noted that the Fed intends to continue to gradually tighten monetary policy. They see three rate hikes during 2018. 

Key Quotes: 

“The Fed kept things simple at its January FOMC meeting. There were no surprises. Policy remained unchanged and the only modest changes were made to the policy statement, aside from removing language inserted following this past fall’s hurricanes.”

“With the global economy reviving and commodity prices rebounding, the Fed appears to be firmly on course to gradually raise interest rates over the next few years.””

“Trimming back the Fed’s balance sheet and finding the new neutral level for the federal funds rate could prove more difficult than is now expected. This is a big reason why policymakers are not eager to buy into the recent firming in the economic and inflation data. The economy has been at this point a few times before but conditions have been upended by natural disasters, political turmoil and financial turmoil overseas.”

“We continue to expect the Fed to hike the funds rates three times this year, with the next hike coming at the March 20-21 FOMC meeting. Jerome Powell will outline his expectations for the economy and interest rates at his SemiAnnual Testimony on Monetary Policy in mid or late February to outline any potential changes in the Fed’s view on economic growth and inflation.”

“As we noted following the December FOMC meeting, the upgrade in the Fed’s 2018 GDP expectations was out of proportion with the modest reduction in expectations for the unemployment rate, which leaves the Fed plenty of flexibility to make the case for an additional rate hike if need be. If stronger GDP growth comes from increased productivity and stronger labor force growth, the Fed could move more gradually.”