Fed: Nothing to see here, move along - Rabobank

Philip Marey, Senior US Strategist at Rabobank, explains that the Fed remains optimistic about the US economy and in fact, they continue to emphasize the upward risk to the outlook from fiscal policy.

Key Quotes

“The March dot plot implied three rate hikes of 25 basis points each this year (including the March hike) and more recently –even after the sinking of the health care bill– several Fed speakers have repeated that they anticipate to hike three times this year, and even hinted at the possibility of four hikes depending on the economic data.”

“Meanwhile, the possible repercussions of the new administration’s trade policies do not seem to affect the Fed’s economic outlook very much. In contrast, we expect fiscal policy to disappoint in terms of timing, size and impact on the economy. What’s more, we see considerable downside risk to US economic growth in case of protectionist measures by the US and its trading partners. In addition, there are overseas risks to the US economy such as weak global growth – which would be amplified by protectionism –, the Chinese economy and developments in Europe. We therefore expect fewer hikes than the Fed currently anticipates. For 2017 as a whole, we expect two instead of three hikes. Of course, with substantial upside risk to our baseline.”