Fed expected to lift rates as Yellen delivers final press conference

There will likely be one more rate hike from the Federal Reserve in 2017 before chairwoman Janet Yellen steps down....

Posted: Dec 12, 2017 8:52 PM
Updated: Dec 12, 2017 8:52 PM

There will likely be one more rate hike from the Federal Reserve in 2017 before chairwoman Janet Yellen steps down.

The Fed is almost certain to deliver a third rate increase at its final two-day Federal Open Market Committee meeting of the year, which concludes on Wednesday. Policymakers have signaled such a move would be likely, citing a strengthening U.S. economy and a declining unemployment rate.

"Fed rhetoric has made it clear that a December rate hike is viewed as appropriate well in advance of any vote that may take place; in other words, the rate hike was predetermined some time ago," David Bloom, global head of FX Research for HSBC wrote in a note to clients.

Related: Jerome Powell says Fed likely to hike rates in December

The federal funds rate, which helps to determine rates for mortgages, credit cards and other borrowing, is in a range of 1% to 1.25%. Analysts expect the Fed to raise the rate by 25 basis points.

Since the 2008 financial crisis, the U.S. central bank has only raised interest rates five times. More recently, amid signs of a gradually improving economy, it has also begun unwinding the massive fiscal stimulus it put into place following the recession.

Led by Yellen, the Fed has worked patiently to maintain economic growth at a steady pace. It has also kept a watchful eye on inflation, which has continued to run below its target of 2%.

All eyes will be looking for clues on what policy makers will forecast for 2018 and beyond during Yellen's final press conference Wednesday.

President Trump nominated Fed governor Jerome Powell in November to take over when Yellen ends her four-year term on February 3. It's largely expected that Powell will stick to a similar playbook as his predecessor, who was named to the post by President Barack Obama. Yellen was the first woman to serve in the role.

Related: Trump nominates Jerome Powell for Federal Reserve's top job

In September, the Fed predicted it would raise rates three more times in 2018, and then twice again in 2019. But some Wall Street analysts are expecting the Fed to pencil in at least one more rate increase for both years.

One complicating factor for policymakers: tax reform. There's already a keen interest by analysts to see how the Fed may account for the Trump administration's tax reform package, which also aims to stimulate economic growth.

"FOMC participants appear not to have fully accounted for the effect of tax cuts on the economy," Jan Hatzius, a Goldman Sachs analyst wrote in a note to clients. "Past precedent suggests that Fed staff and FOMC participants will likely update their projections... to at least partially reflect the impact of tax reform, though the full impact -- especially on the interest rate projections -- will likely have to wait."

Top Fed officials, including Powell, have cautiously refrained from airing their views on the possible implications tax reform would have on the U.S. economy.

Related: Treasury analysis asserts GOP tax plan would be paid for

At last month's confirmation hearing, Powell told members of the Senate Banking Committee the Fed had not undertaken its own economic analysis of the tax bills that have now been passed by the House and Senate. Instead, he said policy makers planned to wait to make their assessment until after a bill was signed by the president.

Jaret Seiberg, an analyst at Cowen Washington Research Group, said an "early challenge" for Powell, if he's confirmed by the Senate, will be whether to raise rates faster should the tax bill prove to deliver a big stimulus to the economy.

"We suspect Powell would be willing to hike rates more quickly than expected if he sees the tax bill leading to inflation," Seiberg wrote in a note to clients.

Related: Europe doesn't like Trump administration's tax plans

Some Fed officials, like New York Federal Reserve Bank President William Dudley, have cautioned against injecting additional stimulus through tax cuts, when the economy is already growing at a pace that is likely to increase inflation over time.

"[T]he economy doesn't need it," Dudley said in late November.

Other observers will also be looking to see whether Yellen will offer clear support for a Senate bill to amend the 2010 Dodd-Frank Act, which would raise the threshold at which banks are labeled "too big to fail" from $50 billion in assets to $250 billion.

"We think Yellen could be mildly supportive of the legislation, which could help the bill's chances and boost banks stocks," wrote Brian Gardner, a policy analyst with Keefe, Bruyette & Woods, in a note to clients.

West Lafayette
Clear
76° wxIcon
Hi: 89° Lo: 66°
Feels Like: 76°
Kokomo
Clear
74° wxIcon
Hi: 85° Lo: 63°
Feels Like: 74°
Rensselaer
Clear
79° wxIcon
Hi: 73° Lo: 63°
Feels Like: 81°
Fowler
Clear
79° wxIcon
Hi: 84° Lo: 64°
Feels Like: 81°
Williamsport
Clear
70° wxIcon
Hi: 88° Lo: 65°
Feels Like: 70°
Crawfordsville
Clear
67° wxIcon
Hi: 85° Lo: 65°
Feels Like: 67°
Frankfort
Clear
73° wxIcon
Hi: 86° Lo: 65°
Feels Like: 73°
Delphi
Scattered Clouds
75° wxIcon
Hi: 88° Lo: 65°
Feels Like: 75°
Monticello
Scattered Clouds
75° wxIcon
Hi: 82° Lo: 63°
Feels Like: 75°
Logansport
Clear
73° wxIcon
Hi: 83° Lo: 63°
Feels Like: 73°
WLFI Radar
WLFI Temps
WLFI Planner

Indiana Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 50300

Reported Deaths: 2748
CountyConfirmedDeaths
Marion11920692
Lake5432248
Elkhart347058
Allen2902133
St. Joseph205169
Hamilton1665101
Cass16449
Hendricks1446100
Johnson1325118
Porter80238
Tippecanoe7599
Clark68144
Vanderburgh6816
Madison67264
LaPorte60527
Howard59458
Bartholomew59345
Kosciusko5704
Marshall5308
Noble50128
LaGrange4829
Jackson4783
Boone47444
Delaware46952
Hancock46036
Shelby43525
Floyd40444
Morgan33631
Monroe32928
Grant30926
Dubois2976
Henry29717
Montgomery29720
Clinton2893
White26810
Decatur25532
Dearborn25423
Lawrence25225
Vigo2478
Warrick24329
Harrison21722
Greene19332
Miami1922
Jennings17912
Putnam1728
DeKalb1674
Scott1639
Wayne1536
Daviess15017
Perry1459
Orange13723
Steuben1362
Jasper1332
Franklin1278
Ripley1277
Wabash1152
Carroll1132
Gibson1132
Fayette1057
Whitley1045
Newton10010
Starke983
Huntington932
Randolph794
Wells791
Jefferson782
Fulton731
Jay680
Washington681
Knox670
Clay665
Pulaski661
Rush613
Posey550
Owen521
Benton510
Spencer501
Adams491
Sullivan471
Brown431
Blackford402
Fountain352
Crawford330
Tipton321
Switzerland300
Martin240
Parke230
Ohio220
Vermillion200
Warren151
Union130
Pike110
Unassigned0193

COVID-19 Important links and resources

As the spread of COVID-19, or as it's more commonly known as the coronavirus continues, this page will serve as your one-stop for the resources you need to stay informed and to keep you and your family safe. CLICK HERE

Closings related to the prevention of the COVID-19 can be found on our Closings page.

Community Events