On tap next week is the March Federal Reserve meeting with the Fed’s statement being released at 2:00pm on March 16th. Unlike the January and April meetings, the March meeting is one of four 2016 meetings with a press conference and the Fed’s economic and interest rate projections. Investors are not expecting a rate hike at this meeting but everyone will be paying close attention to the economic and interest rate projections. Investors will want to know if the expectations for rate hikes in 2016 change after a volatile start to the year.
In December, the last meeting where the Fed released projections, the median projection from the Fed was four rate hikes in 2016. The following table shows the economic and interest rate projections from the December meeting:
Just a few weeks ago 2.4% real GDP and four rate hikes was a long shot as many thought a recession was imminent. The Fed funds futures priced in a less than 10% chance of one rate hike in 2016 let alone four. What a difference a month makes! In the last few weeks economic data has been better than expected and fears of recession are no longer at the forefront. Below are the latest readings for the variables the Fed will project next Wednesday.
As of March 9th the Atlanta Fed’s GDPNow forecasting model is predicting continued growth in Q1 with real GDP growing at 2.2%, close to the Fed’s predictions for 2016. The latest Unemployment and PCE Inflation reports are within tenths of the 2016 projections while Core PCE Inflation is already above the Fed’s projections.
The strength of these data points show that the economy is heading in the direction the Fed predicted in December – will the Fed follow through with the predicted rate hikes?
Don’t expect a rate hike at the March meeting but don’t expect the Fed to back down from their projections of raising rates in 2016. The April meeting remains a possibility for the second rate hike, even though there is no press conference. We expect the Fed to raise rates multiple times this year and have positioned portfolios appropriately for this scenario.
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