FOMC preview: We expect a rate hike and no major changes in forecasts - Danske Bank

According to analysts from Danske Bank, the Federal Reserve will raise the Fed Funds target range 25 basis points and they don’t see major changes to growth, inflation or unemployment forecasts. 

Key Quotes: 

“In line with consensus, we expect the Fed to raise the Fed funds target range 25bp to 0.50%-0.75% from the current 0.25%-0.50% at the FOMC meeting next week, as economic data have improved, the labour market is tightening and financial markets are calm. Markets have fully priced in such a rise.”

“We expect the median ‘dots’ to stay unchanged, signalling two hikes in 2017 and three in 2018, as many FOMC members have said that they want to analyse Trump’s actual economic plans before taking action. Also we think the FOMC members will be reluctant to raise the ‘dots’ prematurely, as they had to revise them down several times this year.”

“For the same reason, we do not expect major changes to the growth, core inflation or unemployment forecasts (the markets also tend to focus less on them). That said, one thing to look for is whether the Fed revises down its NAIRU estimate from the current 4.8%, as the unemployment rate is currently 4.6% but wage growth is still subdued (although it is trending up).”

“We see a chance that the longer-run median ‘dot’ will be revised down to 2.75% from 2.88% currently, as it needs only one FOMC member currently indicating an end rate of 3.00% to revise it down for the longer-run median ‘dot’ to be revised down as well.”