Fed: Risks increasingly being skewed towards just two hikes in 2019 - ING

James Knightley, Senior Economist at ING, points out that despite the Federal Reserve rose rates for the fourth time during 2018, with growth headwinds intensifying and market tensions rising, it will tread a more cautious path in 2019.

Key Quotes: 

“The Fed has hiked its policy rate 25bp to 2.25-2.5% as widely expected, but there is a dovish narrative to the accompanying press release and forecast pace.”

“Having signalled back in September that 3 rate hikes in 2019 was the most likely scenario, 5 FOMC members lowered their projection so the median forecast is now for just two 25bp moves in 2019. They still expect one more rate hike in 2020, but have lowered the longer run projection for the Fed funds rate to a median of 2.8% from 3%. Their predictions for growth, unemployment and inflation were little changed. The statement incorporates these forecast changes by inserting the word “some” to the assessment that “some further gradual increases” in interest rates will be needed.”

“There are some other very subtle changes here and there, but all clearly gave the impression the Fed is looking to slow the pace of rate hikes from the four seen in 2018.”

“At the same time concerns about trade tensions, weaker external demand and the resulting hefty declines in the stock market add to the sense of tougher times ahead.  This will mean that the Federal Reserve takes a more cautious, data dependent approach to policy decisions next year.”

“We, like the Federal Reserve, see the risks increasingly being skewed towards just two hikes in 2019.”