How many rate hikes do you see the Fed pulling off next year?

Author: Justin Low | Category: News

Deutsche Bank now expects the Fed to hike three times in 2019

That's down from their previous expectation of four rate hikes. They also see the Fed hiking one more time thereafter in 2020. BofAML also revised their rate hike expectations from four to two earlier here. Joining them is Morgan Stanley who also forecasts two rate hikes by the Fed next year.

Meanwhile, the likes of JP Morgan and RBC are sticking with four rate hikes still but notes that the risks are mounting that the central bank won't tighten by that much.

Personally, I would expect the market consensus to diverge towards two rate hikes as the base case scenario. Economic data at the moment is still supportive of a rate hike so one during Q1 is very much expected to follow.

The real question will then be how does the Fed view rates at the time relative to where they see the neutral rate being? And then they also have to take into account the slowdown in the global economy as well as waning inflationary pressures.

Will the Fed then decide to go ahead with another hike if the data allows for it? Or will they be more conservative and wait for more clues as we move towards Q3? Keep in mind that the 2s-10s spread has narrowed to just 10 bps today and looks set for an imminent inversion some time early next year. That throws into question more concerns about a possible recession.

What do you think the Fed will do next year? How many rate hikes do you see them pulling off? Or is there an off-chance they cut rates as the economy craters?

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