Fed watch 2017 - BBH

Analysts at Brown Brothers Harriman explained that in 2017, they expect Yellen to continue to normalize the Federal Reserve’s monetary policy. 

Key Quotes:

"The December FOMC meeting resulted in a rate hike, and economic projections anticipate that three rate hikes would be appropriate in 2017. This is not a commitment, of course, and it does not include any potential changes to fiscal policy.

We would place the risk on the upside. The Fed’s objectives of full employment and 2.0% core PCE deflator are within view. Somewhat quicker tightening may be forthcoming if wage growth is evident and sustained. We do expect some fiscal stimulus even if it is not the $1 trillion that has been widely discussed. That said, rapid dollar ap­preciation, on a real trade-weighted basis, might give the Fed pause, especially if stronger world demand does not materialize.

The Federal Reserve is unlikely to preemptively turn more aggressive even when the new president provides more details of his fiscal inten­tions. It is only prudent and practical to see what is eventually negoti­ated, and when it is implemented. If the economy is going through a soft patch, for example, as it appears to have exited near midyear, the fiscal stimulus could be delivered at an opportune time. On the other hand, if the unemployment rate is threatening to fall below 4%, the economy is growing above trend, and prices are accelerating, a different response may be necessary."