News releases

New Fed chair Powell increases US growth and inflation forecasts

22/03/2018

We still see scope for further rate rises from the Federal Reserve (Fed) this year, following yesterday’s 25 basis point rise at the March meeting of the Federal Open Market Committee (FOMC), comments Keith Wade, Chief Economist, Schroders: 

"As expected the Fed raised interest rates by 25 basis points at the March FOMC meeting. The move increases the target range for the Federal funds rate from 1.25%-1.5% to 1.5-1.75%.

At his first FOMC meeting, new Fed chair Jerome Powell also announced that the committee is pushing up its growth and inflation forecasts and increasing its expected path for interest rates. The higher rate profile (the dot plot[1]) is concentrated beyond this year as they look to gradually tighten into 2020.  By the end of that year the median dot is at 3.4%.

We still see scope for more tightening this year as the tax cuts kick in and the Fed has to lean against fiscal policy. We expect four hikes this year and two next, so our forecast matches the dot plots at the end of 2019.

It remains to be seen whether this this will be enough to restrain inflation. Much will depend on how rapidly public expenditure accelerates. Higher tariffs could also complicate the picture by adding to inflation, but weakening growth.

The risks to our forecasts seem skewed to the upside for interest rates. The market looks dovish in expecting that the Fed will be all but done tightening by the end of this year." 

 


[1] The dot plot is published after each Fed meeting. It shows the projections of the 16 members of the FOMC. Each dot represents a member’s view on where the Fed funds rate should be at the end of the various calendar years shown.

 

For further information, please contact:

Schroders

Andy Pearce, Institutional         Tel: +44 (0)20 7658 2203/andy.pearce@schroders.com

Charlotte Banks, Intermediary   Tel: +44 (0)20 7658 2589/charlotte.banks@schroders.com

Lucy Cotter, International          Tel +44 (0)20 7658 3365/lucy.cotter@schroders.com

 

Notes to Editors

Important Information: The views and opinions contained herein are those of Keith Wade, Chief Economist, Schroders, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.