Here are three Fed takes that offer a terrific range of intelligence for what’s ahead. Macquarie kicks us off with its mainstream assessment:
We hold our base case for a December hike on the heels of today’s FOMC communications. Our assessment of the probability of a hike in December shifts to 75% (prev. 60%). Beyond the next hike, we continue to see, on average, 1 hike every 6 months (50 bp per year) until our estimate of 2% for the long-run neutral rate is reached in 2019.
Our perception is that the FOMC is driven to ensure that the current long durable expansion lasts as long as possible. To accomplish this means hiking before there is a burning platform (and a clear overheating). Such an overheating would potentially lead to a more aggressive pace of hikes to curb inflation pressures, a development that in turn could elevate recession risks.
