The Fed is expected to raise interest rates by a quarter point Wednesday and indicate it plans to keep hiking them in what many expect to be a hawkish message for markets.
Wall Street economists expect the Fed to make a number of changes that reinforces a hawkish tone, including raising its growth forecasts, dropping language that says its policy is accommodative and sounding more confident about the outlook.
"I think there's one very key thing we have to watch…which is they increase their long-term growth forecast. Currently it's 1.8 percent," said Jim Caron, portfolio manager at Morgan Stanley Investment Management. "If they take it up to 1.9 percent, that's a pretty important signal."
Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch, also expects the Fed to boost its growth forecasts, for the near term and the longer term. "I don't think the Fed is going to come out and sound like they're on the war path to raising rates. I think they're going to sound more measured— 'the data has been strong, and we're more confident in our forecast,'" said Cabana.
He expects the Fed will keep its forecast of four hikes for this year, three for next, one for 2020, and in a new forecast, add about a half a hike in 2021. That would bring the fed funds rate to3.50 percent.
JP Morgan economists expect the Fed to note a change in its policy stance. "We believe the most notable change to the statement will be to drop the reference to policy being 'accommodative,' and to make no further assessment of whether policy is stimulative or restrictive. We expect Powell will continue to play defense at the press conference, and to not push any strong views on the outlook," wrote JP Morgan economists.
BofA strategists said the removal of the word "accommodative" could seem dovish since the Fed sees policy getting closer to neutral and will then stop raising rates. But they said they believe it is hawkish since the Fed believes the economy is strong enough that it no longer needs to be accommodative and can transition to the next stage of rate hikes.
Reference: CNBC
Read More: https://www.cnbc.com/2018/09/25/fed-expected-to-raise-interest-rates-and-signal-more-hikes-are-coming.html
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