FED likely to raise the federal funds rate to a peak of 3.125% - Westpac

Bill Evans, Chief Economist at Westpac, suggests that based on their current growth and employment forecasts, the FED is likely to raise the federal funds rate to a peak of 3.125% by September next year.

Key Quotes

“We have extended our profile for interest rate increases by the Federal Reserve’s FOMC by 25 basis points.”

“We now expect the final hike in this cycle to be September 2019 rather than June. This will see the federal funds rate peak at 3.125%.”

“This profile is somewhat more hawkish than current market pricing which expects the federal funds rate to peak at around 2.9% by end 2019.”

“While the FOMC’s “dots” envisage a peak of 3.4%, this assumes a continuation of above-trend growth in 2020. We instead expect growth to decelerate to trend in late 2019.”

“We are expecting a slowdown in employment growth through the second half of 2019 from around 1.6% at March 2019 (six month annualised) to around 1% by year’s end. Furthermore we expect the contributions to growth from housing and durables spending to decline significantly in the second half.”