The U.S. Federal Reserve stood pat on rates at the last meeting for Fed Chair Janet Yellen. The economy was seen as having posted “gains” in employment, spending and business investment. Michael Dolega, Senior Economist, TD Bank, talks to Sara D’Elia about how the Fed’s view changed since the last meeting and how many rate hikes we could see in 2018. The TD Economics report is available here.
Well, there wasn't much that actually stood out, and that's one of the problems. It was, relatively, a statement that was subdued. It covered up some of the expected things. As far as the economy picking up steam, that was acknowledged. Inflation expected to rise this year, and inflation expectations picking up. These are some of the things that we've seen over the past few weeks. And basically, the Fed came out and basically acknowledged them to be the case, so that was really as expected.
And makes sense why you called it a vanilla in variety today. In terms of next moves, though, you do think we're going to see the Fed move. And the market's fully priced it in almost at this point, a March hike. What could derail those plans?
Well, I think a significant turn in the data flow, if it really turns south as far as what's coming out of the statistical agencies. So far, the data has been surprising to the upside, and has been quite robust. Should that turn in the coming weeks, I think that would sort of give them some pause as the year goes on.
In terms of hikes for 2018, how many are you predicting?
At this point, we have three priced in. And that basically is taking into consideration the fiscal stimulus that I was talking about. And so I think that the Fed is going to have to raise rates a little bit quicker than without the fiscal stimulus. We have sort of 50 prior-- or we have two hikes prior to that being implemented fully, so there's definitely a little bit more tightening that's going to come as a result of the tax cuts that have been recently signed into law.
Thank you very much.
Thanks for having me.