A survey of the Fed’s 22 primary bond dealers from the NY Fed sees rate hikes beginning in Q3 2015 and reaching a high of 3.50% in 2017.
That’s down from a peak of 4.00% in the January survey but it still sounds wildly optimistic. The Fed, and evidently large parts of Wall Street, still see economy able to sustain those kinds of rates. I look at an economy that can barely get on its feet years after a crisis with the benefits of zero rates and near-endless QE.
If you start hiking rates you’re taking away two of the only tail winds the economy has — rising home and equity markets. Is the consumer going to carry the weight? Perhaps the oil boom will add to GDP but I don’t see how it could sustain Fed funds at 3.50%. I’d say rates at 1.00% in 2017 are much more likely.
