Barclays response to the Federal Open Market Committee minutes released during the US session ... (bolding mine)
We see upside risks as having risen since the January meeting
- but we doubt the committee is ready to shift to four hikes.
Our expectation is that the combination of
- above-trend growth,
- a falling unemployment rate,
- and gradual firming in inflation
will cause the Fed to shift from three to four hikes this year in its median outlook.
Our conviction on this view has increased with the passage of the Bipartisan Budget Act of 2018, which had not been completed at the time of the January meeting.
- The impulse from fiscal stimulus in the form of tax cuts and stronger public sector spending is likely to be sizeable enough to insulate the economy from external shocks and keep the unemployment rate falling.
That said, we do not see the committee as communicating a four-hike median in March,
- as we believe most participants will need to see sufficient evidence that output, labor markets, and inflation are evolving in line with committee expectations.
- The effects of the fiscal stimulus are likely to take some time to work through the economy, and participants can afford to be patient and watch how the data evolve.
We think the shift to four hike: this year is more likely to come in June, or perhaps September, depending on how quickly the unemployment rate moves lower.
