Federal Reserve (Fed) FORECASTER - CANADA #1 …ACCORDING TO THE FED f The Committee decided to...
2
ESSENTIALS OF THE MONETARY POLICY François Dupuis, Vice-President and Chief Economist • Mathieu D’Anjou, Deputy Chief Economist Francis Généreux, Senior Economist • Hendrix Vachon, Senior Economist Desjardins, Economic Studies: 514-281-2336 or 1 866-866-7000, ext. 5552336 • [email protected] • desjardins.com/economics NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2018, Desjardins Group. All rights reserved. ACCORDING TO THE FED f The Committee decided to raise the target range for the federal funds rate to 2.25% to 2.50%. f Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. f On a 12‑month basis, both overall inflation and inflation for items other than food and energy remain near 2%. Indicators of longer‑term inflation expectations are little changed, on balance. f The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective over the medium term. The Committee judges that risks to the economic outlook are roughly balanced. COMMENTS For once, there seemed to be a little more uncertainty surrounding the decision the Fed’s leaders had to make today. The recent plunge in the stock market and bond yields reflected a degree of concern regarding the state of the economy and the impact of previous key rate hikes. Moreover, a number of voices, including that of the President of the United States, were raised recently in favour of immediately putting a halt to monetary tightening. Nevertheless, and as we anticipated in our scenarios, the Fed stayed the course. Therefore, it will have gone ahead with four key rate hikes in 2018, a pace that exceeds the three hikes in 2017. However, the Fed’s leaders forecasts are banking on the pace of tightening slowing in 2019. The median of the federal funds rate projections for the end of next year indicates only two rate hikes compared with the three anticipated last September. After that, only one more rate hike is planned to occur in 2020. The feeling is that the Fed is slightly more concerned about the strength of the economy and that it wants to avoid a policy that is too restrictive. Furthermore, the forecast growth in real GDP for 2019 (annual change in Q4) was revised downward from 2.5% to 2.3%. The Fed also moderatly reduced its inflation forecasts. From our perspective, we anticipate an annual change in real GDP of 2.4% in Q4 of 2019. This forecast, like the Fed’s, nonetheless suggests that growth will continue to outpace the potential of the U.S. economy. IMPLICATIONS The Fed seems determined to slow down the pace of key rate hikes while ensuring it reaches a neutral monetary policy. It wants to properly gauge the economic indicators, for it is these, more than market pressure or President Donald Trump, that will help Jerome Powell and his colleagues decide on the next quarterly breaks in the cycle of rate hikes. One of these breaks may happen as early as March. Francis Généreux, Senior Economist Federal Reserve (Fed) The Fed Raises Its Rates—in Spite of Donald Trump and the Markets—but Signals Fewer Hikes in Future ECONOMIC STUDIES | DECEMBER 19, 2018 #1 BEST OVERALL FORECASTER - CANADA
Transcript of Federal Reserve (Fed) FORECASTER - CANADA #1 …ACCORDING TO THE FED f The Committee decided to...
ESSENTIALS OF THE MONETARY POLICY
François Dupuis, Vice-President and Chief Economist • Mathieu D’Anjou, Deputy Chief Economist Francis Généreux, Senior Economist • Hendrix Vachon, Senior Economist
Desjardins, Economic Studies: 514-281-2336 or 1 866-866-7000, ext. 5552336 • [email protected] • desjardins.com/economics
NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2018, Desjardins Group. All rights reserved.
ACCORDING TO THE FED
f The Committee decided to raise the target range for the federal funds rate to 2.25% to 2.50%.
f Information received since the Federal Open Market Committee met in November indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has remained low. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year.
f On a 12‑month basis, both overall inflation and inflation for items other than food and energy remain near 2%. Indicators of longer‑term inflation expectations are little changed, on balance.
f The Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective over the medium term. The Committee judges that risks to the economic outlook are roughly balanced.
COMMENTS
For once, there seemed to be a little more uncertainty surrounding the decision the Fed’s leaders had to make today. The recent plunge in the stock market and bond yields reflected a degree of concern regarding the state of the economy and the impact of previous key rate hikes. Moreover, a number of voices, including that of the President of the United States, were raised recently in favour of immediately putting a halt to monetary tightening.
Nevertheless, and as we anticipated in our scenarios, the Fed stayed the course. Therefore, it will have gone ahead with four key rate hikes in 2018, a pace that exceeds the three hikes in 2017.
However, the Fed’s leaders forecasts are banking on the pace of tightening slowing in 2019. The median of the federal funds rate projections for the end of next year indicates only two rate hikes compared with the three anticipated last September. After that, only one more rate hike is planned to occur in 2020. The feeling is that the Fed is slightly more concerned about the strength of the economy and that it wants to avoid a policy that is too restrictive. Furthermore, the forecast growth in real GDP for 2019 (annual change in Q4) was revised downward from 2.5% to 2.3%. The Fed also moderatly reduced its inflation forecasts. From our perspective, we anticipate an annual change in real GDP of 2.4% in Q4 of 2019. This forecast, like the Fed’s, nonetheless suggests that growth will continue to outpace the potential of the U.S. economy.
IMPLICATIONS
The Fed seems determined to slow down the pace of key rate hikes while ensuring it reaches a neutral monetary policy. It wants to properly gauge the economic indicators, for it is these, more than market pressure or President Donald Trump, that will help Jerome Powell and his colleagues decide on the next quarterly breaks in the cycle of rate hikes. One of these breaks may happen as early as March.
Francis Généreux, Senior Economist
Federal Reserve (Fed)The Fed Raises Its Rates—in Spite of Donald Trump and the Markets—but Signals Fewer Hikes in Future
ECONOMIC STUDIES | DECEMBER 19, 2018
#1 BEST OVERALLFORECASTER - CANADA
ECONOMIC STUDIES
2DECEMBER 19, 2018 | ESSENTIALS OF THE MONETARY POLICY
Date Central banks Decision Rate
17 Bank of Korea s.q. 1.5017 Bank of Canada* +25 b.p. 1.2522 Bank of Japan s.q. -0.1025 European Central Bank s.q. 0.0025 Bank of Norway s.q. 0.5031 Federal Reserve s.q. 1.50
5 Reserve Bank of Australia s.q. 1.507 Reserve Bank of New Zealand s.q. 1.757 Bank of Brazil -25 b.p. 6.758 Bank of England s.q. 0.508 Bank of Mexico +25 b.p. 7.50
14 Bank of Sweden s.q. -0.5026 Bank of Korea s.q. 1.50
5 Reserve Bank of Australia s.q. 1.507 Bank of Canada s.q. 1.258 European Central Bank s.q. 0.008 Bank of Japan s.q. -0.10
15 Bank of Norway s.q. 0.5015 Swiss National Bank s.q. -0.7521 Reserve Bank of New Zealand s.q. 1.7521 Bank of Brazil -25 b.p. 6.5021 Federal Reserve +25 b.p. 1.7522 Bank of England s.q. 0.50
3 Reserve Bank of Australia s.q. 1.5011 Bank of Korea s.q. 1.5012 Bank of Mexico s.q. 7.5018 Bank of Canada* s.q. 1.2526 European Central Bank s.q. 0.0026 Bank of Sweden s.q. -0.5026 Bank of Japan s.q. -0.10
1 Reserve Bank of Australia s.q. 1.502 Federal Reserve s.q. 1.753 Bank of Norway s.q. 0.509 Reserve Bank of New Zealand s.q. 1.75
10 Bank of England s.q. 0.5016 Bank of Brazil s.q. 6.5017 Bank of Mexico s.q. 7.5023 Bank of Korea s.q. 1.5030 Bank of Canada s.q. 1.25
5 Reserve Bank of Australia s.q. 1.5013 Federal Reserve +25 b.p. 2.0014 European Central Bank s.q. 0.0014 Bank of Japan s.q. -0.1020 Bank of Brazil s.q. 6.5021 Bank of England s.q. 0.5021 Bank of Norway s.q. 0.5021 Bank of Mexico +25 b.p. 7.7521 Swiss National Bank s.q. -0.7527 Reserve Bank of New Zealand s.q. 1.75
EMPTY
January
February
March
April
May
June
Schedule 2018 of Central Bank MeetingsDate Central banks Decision Rate
3 Reserve Bank of Australia s.q. 1.503 Bank of Sweden s.q. -0.50
11 Bank of Korea s.q. 1.5011 Bank of Canada* +25 b.p. 1.5026 European Central Bank s.q. 0.0031 Bank of Japan s.q. -0.10
1 Bank of Brazil s.q. 6.501 Federal Reserve s.q. 2.002 Bank of England +25 b.p. 0.752 Bank of Mexico s.q. 7.757 Reserve Bank of Australia s.q. 1.508 Reserve Bank of New Zealand s.q. 1.75
16 Bank of Norway s.q. 0.5030 Bank of Korea s.q. 1.50
4 Reserve Bank of Australia s.q. 1.505 Bank of Canada s.q. 1.506 Bank of Sweden s.q. -0.50
13 European Central Bank s.q. 0.0013 Bank of England s.q. 0.7518 Bank of Japan s.q. -0.1019 Bank of Brazil s.q. 6.5020 Bank of Norway +25 b.p. 0.7520 Swiss National Bank s.q. -0.7526 Reserve Bank of New Zealand s.q. 1.7526 Federal Reserve +25 b.p. 2.25
2 Reserve Bank of Australia s.q. 1.504 Bank of Mexico s.q. 7.75
17 Bank of Korea s.q. 1.5024 Bank of Sweden s.q. -0.5024 Bank of Canada* +25 b.p. 1.7525 European Central Bank s.q. 0.0025 Bank of Norway s.q. 0.7530 Bank of Japan s.q. -0.1031 Bank of Brazil s.q. 6.50
1 Bank of England s.q. 0.755 Reserve Bank of Australia s.q. 1.507 Reserve Bank of New Zealand s.q. 1.758 Federal Reserve s.q. 2.25
15 Bank of Mexico +25 b.p. 8.0029 Bank of Korea +25 b.p. 1.75
3 Reserve Bank of Australia s.q. 1.505 Bank of Canada s.q. 1.75
12 Bank of Brazil s.q. 6.5013 European Central Bank s.q. 0.0013 Bank of Norway s.q. 0.7513 Swiss National Bank s.q. -0.7519 Federal Reserve +25 b.p. 2.50
19-20 Bank of Japan20 Bank of England20 Bank of Sweden20 Bank of Mexico
July
August
September
October
November
December
NOTE: Certain banks may decide to change rates in-between the scheduled meetings. The abbreviations s.q. and b.p. correspond to status quo and basis points respectively. * Monetary Policy Report published.
