United States

December Fed meeting and anticipated economic projections for 2018

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We expect that the December Federal Reserve (Fed) meeting will see the Federal Open Market Committee (FOMC) increase the federal funds rate to between 1.25 and 1.50 percent. In our estimation we anticipate that the Fed will signal potential changes to their 2018 outlook. We also would not be surprised if the dot plots imply four rate hikes next year in contrast with the three indicated inside the summary of economic projections at the September meeting. Moreover, we expect modest revisions to the growth forecast and unemployment rate estimate, which both reflect the fundamental improvement in the economy.

That being said, while the Fed internally is discussing the impact of a potential large, late-cycle tax cut on the economy and the direction of monetary policy, investors will observe no material change in the summary of economic projections or rate forecast via the dot plots at this meeting. In our view, that may be reflected in the March meeting where Chairman Jay Powell will have the opportunity to put his first significant imprint on the Fed and the direction of policy. Lastly, the FOMC will likely lift the current cap on the paring down of the $4.4 trillion balance sheet by $10 billion in line with the already announced schedule.

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