Federal Reserve leaders convene in Washington this week to discuss interest rates for the first time since the U.S. presidential election sent long-term bond yields and equity markets soaring on bets the new administration will stimulate growth.
While a quarter-point rate hike on Wednesday to a range of 0.5 percent to 0.75 percent is practically a foregone conclusion, investors will be keen to see how policy makers change their 2017 forecasts and what Fed Chair Janet Yellen has to tell journalists. She is scheduled to give a press conference 30 minutes after the 2 p.m. release of a post-meeting statement and new projections. Here’s what to watch for:
The so-called “dot plot” graphic, which contains rate forecasts of each of the 17 officials on the policy-setting Federal Open Market Committee, will give an early glimpse of their thinking about next steps. When the dots were last updated in September, the median projection — shared by nine of the 17 central bankers — called for two rate increases next year.
That’s a far cry from December 2015, when the median FOMC forecast was for four hikes this year and another four next. They cut those projections throughout 2016 amid financial-market turmoil, concerns about global growth and low inflation expectations.
It’s possible estimates will change direction and start rising again, said Roberto Perli, a former Fed economist who is now a partner at Cornerstone Macro LLC in Washington. He said only two of the nine FOMC members currently in agreement need to raise their forecasts for the median to show three hikes in 2017. Still, it may be too soon for that shift to occur, considering officials are uncertain about the shape and impact of President-elect Donald Trump’s policies.
“What seems likely is that the slide down in the dots that has been going on for quite a while should come to an end,” Perli said.