Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       

Blog Home
   Brian Wesbury
Chief Economist
X •  LinkedIn
   Bob Stein
Deputy Chief Economist
X •  LinkedIn
  The Fed Turns Hawkish
Posted Under: Government • Research Reports • Fed Reserve • Interest Rates
Supporting Image for Blog Post


The Federal Reserve unanimously decided to raise rates in 2016 – finally! – by a quarter of a percentage point earlier today, as the markets expected.  The federal funds rate is now set to hover between 0.50% and 0.75%.    

In addition, the Fed slightly accelerated the pace of projected rate hikes in 2017, up to a median forecast of three hikes next year versus a prior estimate of two.  After that, there was no change in the projected pace of rate hikes, with the Fed still anticipating three rate hikes each in 2018 and 2019 and an ultimate long-run average rate of 3.0%. 

Meanwhile, the Fed made its statement more hawkish.  First, it said "inflation has increased" versus the last statement in November, which used a wishy-washy "inflation has increased somewhat."  Second, it said market-based measures of inflation compensation "have moved up considerably."  Other than that, there were no noteworthy changes to the statement.
In our view, economic fundamentals warranted multiple rate hikes this year.  The unemployment rate is already below the Fed's long-term projection of 4.8% and nominal GDP – real GDP growth plus inflation – has grown at a 3.1% annual rate in the past two years.  Meanwhile, consumer price inflation has accelerated to 1.6% in the past year from 0.2% in the year ending in October 2015.

Given the likelihood of tax cuts next year, we think the Keynesians at the Fed will become increasingly comfortable with their projection of faster rate hikes, unlike in the past few years when they over-promised and under-delivered.  Slightly higher short-term rates are not going to derail US growth.  Instead, rate hikes will help prevent a misallocation of capital and problems down the road.   

Brian S. Wesbury, Chief Economist
Robert Stein, Dep. Chief Economist

Click here for PDF version

Posted on Wednesday, December 14, 2016 @ 3:30 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2023 All rights reserved.