The most important part of today's statement from the Federal Reserve is that it thinks the slow economic growth in the first quarter is temporary. As a result, the market consensus on the odds of a rate hike by June rose to about 94% after the meeting from about 67% beforehand.
The Fed made other relatively minor changes to its statement, but nothing that should change anyone's impression of where the Fed is headed. The Fed noted slower consumer spending recently, but said the "fundamentals" supporting consumer spending "remained solid." No one dissented from the statement, which suggests that even the "doves" are on board with further rate hikes.
Our forecast has not changed. We expect a rate hike in June another in September – 25 basis points each – and then the beginning of (gradual) asset sales in the fourth quarter. None of this will damage the economy. Job growth remains healthy and nominal GDP – real GDP growth plus inflation – has grown at a 3.4% annual rate in the past two years.
Brian S. Wesbury, Chief Economist
Robert Stein, Dep. Chief Economist
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Posted on Wednesday, May 3, 2017 @ 2:51 PM