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U.S. Fed likely to hike rates by 25 bps, to maintain expectation of three hikes in 2018 – Nordea Bank

The U.S. Fed is set to meet this week for its interest rate decision. According to a Nordea Bank research report, the Fed is likely to hike the fed funds rate by 25 basis points to a range of 1.25-1.50 percent. This would be the third rate hike in 2017 and the fifth in the current cycle.

The markets are pricing the rise in rate with almost 100 percent likelihood and therefor the Federal Reserve’s guidance for 2018 and beyond would be more significant. The FOMC is likely to maintain its median expectation of three hikes next year, two in 2019 and one in 2020.

Considering the rising likelihood of tax cuts and the lower jobless rate, risks are believed to be tilted towards the dot plot indicating additional hikes rather than fewer, possibly moving the median projection of the fed funds rate up to four hikes in 2018.

The recent meeting’s minutes showed broad based concern about the subdued inflation figures. But recent Fed speeches have implied that the lingering concerns about persistent subdued inflation are usually countered by strong economic growth and the falling jobless rate, stated Nordea Bank.

At 17:00 GMT the the FxWirePro's Hourly Strength Index of US Dollar was neutral at -5.53132. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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