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Any Trump policies will have large lag, Fed hikes once in 2017 –Rabobank

Published 01/19/2017, 05:04 AM
Updated 01/19/2017, 05:27 AM
© Reuters.  Rabobank expects just one Fed rate hike this year as economic impact from Trump will lag

© Reuters. Rabobank expects just one Fed rate hike this year as economic impact from Trump will lag

Investing.com – Even though Federal Reserve (Fed) Janet Yellen said late Wednesday that she expects the central bank to lift interest rates “a few times a year” until they return to around 3% by the end of 2019, Rabobank repeated its call for the Fed to hike only once this year.

In a dovish note to clients, the Dutch broker said they “remain skeptical” of the Fed’s call to hike rates three times this year.

“Not least because of the fact that even if (President-elect Donald Trump) is able to get an increase in spending that will create jobs and boost inflation, there exists a large lag in terms of implementation and the postive impacts of such policies may well be countered by the negative consequences of Trump’s highly uncertain trade policies,” these analysts explained.

Yellen herself did remark that the Fed will “closely follow” the many new economic policies currently being considered.

"We will factor (any changes in economic policy) into the outlook and take account of their impact on what we need to do to achieve our dual mandate objectives," she said.

Though not as dovish as Rabobank, markets still only priced in two rate hikes for 2017 on Thursday.

Fed fund futures priced in a 71.6% chance that the first increase would come in June with odds for a second hike in November at 53.6%, according to Investing.com's Fed Rate Monitor Tool.

Still, markets saw only a 37.7% chance that the Fed would manage to fulfill its projection of three hikes by December.

Among the most hawkish calls, a recent Reuters’ poll of 100 economists saw 14 of those surveyed predicting a hike at the March meeting.

Inflation data released on Wednesday convinced ING senior economist James Knightly that the first move would arrive by the end of the first quarter.

Knightly noted that it was the first time that both headline and core U.S. inflation had breached 2% since the second quarter of 2014.

“With headline inflation likely to move up towards 2.5% in the second half of the year and President Trump promising pro-growth and pro-job policies in what already is a fairly strong story, it means further Federal Reserve rate hikes are not far away,” he insisted, specifying that he forecast the first hike to be in March with another move higher in the third quarter.

Yellen will offer more remarks on Thursday when she gives a speech on the economic outlook and conduct of monetary policy at the Stanford Institute for Economic Policy Research at 8:00PM ET (1:00GMT Friday).

Trump himself is scheduled to deliver remarks during the second act of the concert at Lincoln Memorial, dubbed the “Make America Great Again! Welcome Celebration”, tentatively set for 11:15AM ET (16:15GMT).

That will all come prior to Trump’s inauguration speech on Friday which he wrote himself.

“He wants to talk about his vision of where he sees this country going and where we are right now, frankly,” Sean Spicer, the incoming press secretary, said at a press briefing on Thursday.

“It is being 100% driven by him,” Spicer explained.

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