Fed may pencil in fewer rate hikes in 2017 and 2018 but stick to two in 2016
What the Federal Reserve chooses to do with its “dot plot” will be the best gauge to mood of U.S. central bankers following the worst jobs report in more than five years.
The Fed will release the dot plot — which shows where each of the central bank’s 17 governors and regional bank presidents project interest rates— along with a policy statement and new economist forecasts at 2 p.m. Eastern on Wednesday. Fed Chairwoman Janet Yellen will follow up with a press conference at 2:30 p.m.
There is widespread agreement that the U.S. central bank will hold its federal funds target rate unchanged at between 0.25% and 0.5% after the meeting.
Since the Fed’s last meeting in April, many U.S. central bankers stressed that they were leaning toward backing a rate hike in June if the economy cooperated. But then the Labor Department reported that a disappointing 38,000 were created in May, raising fresh uncertainty about the health of the economy.
Fed Chairman Janet Yellen, who prior to the jobs report said that a rate hike was possible “in coming months,” didn’t repeat the comment in a lengthy speech after the data was released.
Economists don’t see much chance of a change in the Fed’s projection of two rate hikes for 2016. In March, nine Fed officials projected two rate hikes. And only a small group is expected to ratchet down to forecast one rate hike this year, said Michael Gregory, deputy chief economist at BMO Capital Markets.
Ellen Zentner, chief economist at Morgan Stanley, thinks the Fed will still project two rate hikes in 2016 but trim its forecast and project three rate hikes in both 2017 and 2018.
“Yellen will tie the lower path of policy to persistent headwinds that resulted in longer-run forecast changes,