Credit Suisse sees four U.S. rate hikes in 2018 after budget deal (PCE Deflator YoY still below 2%)

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NEW YORK (Reuters) – Credit Suisse’s U.S. economists said on Monday they now expect the Federal Reserve to raise key U.S. short-term borrowing costs four times in 2018, one more than their earlier view for three rate hikes, following last week’s U.S. budget agreement.

”The FOMC has already boosted their growth outlook for 2018 in light of the tax bill passed in December and we anticipate

another upward revision to their growth forecast at the March meeting,” the Credit Suisse economists wrote in a research note.

”With the economy near (or above) full employment, prudent risk management suggests the Fed ought to accelerate their tightening in response to a large positive demand shock,” they said.

Prudent? Like keeping The Fed Funds Target rate near zero for 10 years? While creating enormous asset bubbles?

fedspxrea

Yes, the US is near full employment, but inflation (PCE Deflator) is still below 2%.

pcedeflator

While hourly earnings are still below levels seen in 2007.

earningyoy

Four times at 25 basis points each equals 100 basis points in one year. According to the Rudebusch calibration of The Taylor Rule, that will leave The Fed with only 373 basis points to get to where it should be. That would be over another three years (assuming nothing changes).

thrudy

Let’s see how the Powell-led Fed Open Market Committee (FOMC) reacts to this week’s inflation news.

jaypowell

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