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Friday 24 February 2017

Danske Bank: Uncertainty about the economy of Trump may lead the Fed to raise rates only twice in 2017

As expected, we have not learned many new from FOMC, as most members of the committee have already expressed their views after its meeting in February. The head of the Federal Reserve Janet Yellen also spoke, as she did in mid-February before Congress.
FOMC members believe that the economy continues to show improvement, but Trump's economics makes predicting future decisions indefinite. The word "uncertainty" was mentioned in the minutes of FOMC 14 times. This is slightly less than in December, when it was mentioned 15 times, but significantly more than in November, when Donald Trump won the elections (only 5 times).
Although most members of the Commission expect that the increase in interest rates will happen "very soon", only a small portion of the hopes are that this will happen at the meeting in March. This confirms the opinion of analysts of the bank that the increase in interest rates in March seems unlikely. The Fed can not afford to sit on the fence, pointing to the strong dollar and inflation, which remained below the target level of 2%.
The bank analysts continue to believe that the Fed will raise rates twice in 2017: in June and December. But there is a chance for a third increase. If economic indicators remain strong, analysts of the bank will receive more information about the economy of Trump, as then they do not exclude the possibility of an increase in interest rates in May.


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