FOMC: Median now looking for 3 hikes next year – SocGen

The final major policy act of 2016 saw the Fed raise rates by 25bp, as universally expected, and adjust its ‘dot plot’ upwards, with the median now looking for 3 hikes next year where previously there were only two priced in as noted by the Kit Juckes, Research Analyst at Societe Generale.

Key Quotes

“Bloomberg’s fed probability calculator has the chances of a third hike in 2017 at 48%. 9% higher than was the case on Tuesday. Given that Fed’s history of undershooting the dot plot, and the uncertainty surrounding fiscal policy next year as President Trump takes office, that’s a pretty big leap of faith but markets have bought into ‘Trumponomics;’ hook , line and sinker and aren’t of a mind to challenge the fed. Perhaps this reflects the fact that there are still many bond investors struggling to adjust to a world of rising yields. We expect two hikes next year, but we do still expect to see Treasury yields to move higher, even if they (like every other market) have gone faster than expected.”