The Federal Reserve has raised rates for the third time this year and more hikes are expected. Scott Colborne, Managing Director, TD Asset Management, talks to Kim Parlee about a potential head-on collision between trade and monetary policies.
This move in rates, I think, was really thought to be a fait accompli. Everyone was expecting it. But tell me what you were looking for and what you are still watching at this point.
There are a handful of things I was looking for. Dot plots, so that was everybody's focus. The dot plots are the governor's forecasts of interest rates in 2018, '19, '20 and beyond. And they really didn't change that much. The median, which is what the market focuses on.
So what do we take away from that? One more hike in 2018, three in '19, and one more in 2020. And so that's the path, and there was no change there. The forecasts broadly unchanged from June, so no real surprises there. I think the surprise came in the removal of the language. Monetary policy is not accommodative anymore.
So the market is sort of trying to grapple with that. At the margin, they're taking this bullishly, or dovishly, because we're closer to the end of the hiking cycle in that interpretation.
What do you think-- I think a lot people are going to be listening, are going to hear more about growth and inflation, those types of things? What do you think this Fed has to be careful of right now? I guess even trade is something they're probably trying not to step into at the moment.
Yeah, I think they have to be sensitive because the Fed is the central bank that's moving and gradually increasing rates at a rate that's different from the rest of the world. So you know, sort of like that elastic band analogy, you just-- you can't keep moving and tightening and tightening, and the rest of the world is not moving in lockstep.
So they have to be sensitive to that. So you've seen some turmoil this summer in emerging markets, and that's part of the interest rate equation. So far on trade, it's definitely an issue the market's focused on. The economic impact has been marginal. Obviously, the longer it goes on, the tensions that grow on that side of things, that's going to have an impact for the Fed. And that will have to feed into the forecasts.
So that extension of how far on the rate side and the trade side will factor in terms of how far the Fed can continue to raise rates in the future.
Scott, thanks very much.