Federal Reserve (Fed) FORECASTER - CANADA #1 BEST OVERALL The Fed … · 2018. 6. 14. · ACCORDING...
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ESSENTIALS OF THE MONETARY POLICY François Dupuis, Vice-President and Chief Economist Mathieu D’Anjou, Senior 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 1.75% to 2.00%. f Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. f On a 12‑month basis, both overall inflation and inflation for items other than food and energy have moved close to 2%. Indicators of longer‑term inflation expectations are little changed, on balance. f The Committee expects that 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. COMMENTS As anticipated, Fed leaders opted to increase its key rates again. During this rate-hiking cycle, which began in 2015, the top of the target range has risen from 0.25% to 2.00%. The work doesn’t stop there for the Fed, and today’s statement, as well as the forecasts released at the same time, suggest that the pace is expected to quicken compared to last year. Rates increased three times in 2017. Two rate hikes have already taken place in 2018, and the Fed leaders’ median forecast for rates at the end of 2018 signal two more. Consequently, Jerome Powell and his colleagues are now aiming for a total of four increases over the course of the year. However, the pace is then expected to slow somewhat, with three hikes expected in 2019 and just one in 2020. The leaders’ other forecasts regarding the economy and inflation changed slightly. The annual change in real GDP in Q4 of 2018 has been revised a tad upwards from 2.7% in March to 2.8% now (it was 2.5% in December). A lower unemployment rate is also anticipated at the end of 2018 (from 3.8% to 3.6%) and at the end of 2019 (from 3.6% to 3.5%). Inflation has been upgraded by a slight 0.1% for 2018 and 2019. These forecasts are fairly similar to our own scenarios. The Fed deleted from its statement the part signalling that rates were likely to remain below the long-term rate for some time (forecasted to be 2.9% by the Fed). Clearly, at 2.00%, the key rates are now closer to what is referred to as the neutral rate, and the next hikes will narrow the gap even further. The policy is no longer as accommodating as it was, and will become even less so over time. This is a perfectly normal development considering the current strength of the economy, the inflation rate and the job market. IMPLICATIONS The statement and Jerome Powell’s comments are both optimistic, suggesting that the quarterly pace for key rate hikes should continue in September and December, for a total of four increases in 2018. Francis Généreux, Senior Economist Federal Reserve (Fed) The Fed Raises Rates and Signals Two More Hikes in 2018 ECONOMIC STUDIES | JUNE 13, 2018 #1 BEST OVERALL FORECASTER - CANADA
Transcript of Federal Reserve (Fed) FORECASTER - CANADA #1 BEST OVERALL The Fed … · 2018. 6. 14. · ACCORDING...
ESSENTIALS OF THE MONETARY POLICY
François Dupuis, Vice-President and Chief Economist Mathieu D’Anjou, Senior 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 1.75% to 2.00%.
f Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.
f On a 12‑month basis, both overall inflation and inflation for items other than food and energy have moved close to 2%. Indicators of longer‑term inflation expectations are little changed, on balance.
f The Committee expects that 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.
COMMENTS
As anticipated, Fed leaders opted to increase its key rates again. During this rate-hiking cycle, which began in 2015, the top of the target range has risen from 0.25% to 2.00%.
The work doesn’t stop there for the Fed, and today’s statement, as well as the forecasts released at the same time, suggest that the pace is expected to quicken compared to last year. Rates increased three times in 2017. Two rate hikes have already taken place in 2018, and the Fed leaders’ median forecast for rates at the end of 2018 signal two more. Consequently, Jerome Powell and his colleagues are now aiming for a total of four increases over the course of the year. However, the pace is then expected
to slow somewhat, with three hikes expected in 2019 and just one in 2020.
The leaders’ other forecasts regarding the economy and inflation changed slightly. The annual change in real GDP in Q4 of 2018 has been revised a tad upwards from 2.7% in March to 2.8% now (it was 2.5% in December). A lower unemployment rate is also anticipated at the end of 2018 (from 3.8% to 3.6%) and at the end of 2019 (from 3.6% to 3.5%). Inflation has been upgraded by a slight 0.1% for 2018 and 2019. These forecasts are fairly similar to our own scenarios.
The Fed deleted from its statement the part signalling that rates were likely to remain below the long-term rate for some time (forecasted to be 2.9% by the Fed). Clearly, at 2.00%, the key rates are now closer to what is referred to as the neutral rate, and the next hikes will narrow the gap even further. The policy is no longer as accommodating as it was, and will become even less so over time. This is a perfectly normal development considering the current strength of the economy, the inflation rate and the job market.
IMPLICATIONS
The statement and Jerome Powell’s comments are both optimistic, suggesting that the quarterly pace for key rate hikes should continue in September and December, for a total of four increases in 2018.
Francis Généreux, Senior Economist
Federal Reserve (Fed)The Fed Raises Rates and Signals Two More Hikes in 2018
ECONOMIC STUDIES | JUNE 13, 2018
#1 BEST OVERALLFORECASTER - CANADA
ECONOMIC STUDIES
2JUNE 13, 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 Bank14 Bank of Japan20 Bank of Brazil21 Bank of England21 Bank of Norway21 Bank of Mexico21 Swiss National Bank27 Reserve Bank of New Zealand
EMPTY
January
February
March
April
May
June
Schedule 2018 of Central Bank MeetingsDate Central banks Decision Rate
3 Reserve Bank of Australia3 Bank of Sweden
11 Bank of Korea11 Bank of Canada26 European Central Bank30 Bank of Japan
1 Bank of Brazil1 Federal Reserve2 Bank of England2 Bank of Mexico7 Reserve Bank of Australia8 Reserve Bank of New Zealand
16 Bank of Norway30 Bank of Korea
4 Reserve Bank of Australia5 Bank of Canada6 Bank of Sweden
13 European Central Bank13 Bank of England18 Bank of Japan19 Bank of Brazil20 Bank of Norway20 Swiss National Bank26 Reserve Bank of New Zealand26 Federal Reserve
2 Reserve Bank of Australia4 Bank of Mexico
17 Bank of Korea24 Bank of Sweden24 Bank of Canada25 European Central Bank25 Bank of Norway30 Bank of Japan31 Bank of Brazil
1 Bank of England5 Reserve Bank of Australia7 Reserve Bank of New Zealand8 Federal Reserve
15 Bank of Mexico29 Bank of Korea
3 Reserve Bank of Australia5 Bank of Canada
12 Bank of Brazil13 European Central Bank13 Bank of Norway13 Swiss National Bank19 Bank of Japan19 Federal Reserve20 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.
