Divided Fed Holds Steady and All But Guarantees December Increase

The Fed statement today revealed an increasingly divided and hawkish committee, with three out of ten voting to raise rates immediately. This is one of the most divided Fed meetings since The Great Recession. Fed Chair Yellen said she expects a rate increase “this year” at the subsequent press conference. Since the November meeting has no press conference and is the week before the US election, any Fed movement is highly unlikely on that date. What is more interesting (as a single hike in 2016 has long been anticipated), is the pace of future rate increases. The Fed lowered their expectation of US growth from 2.0% to 1.8%. Officials now predict two rates hikes next year and three in 2018. This reflects the Fed is accepting tepid growth as part of the “new normal” reality post Great Recession. Normal growth might settle at sub 2.0%. The wild card is inflation. If inflation increases more than expected, all bets are off and rapid rate increases could be back on the table. Stay tuned.

David R. Pascale, Jr.