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Fed Tightens for Second Time This Year: What’s Ahead for the Balance of 2018?
The FOMC decision did not disappoint. As was widely expected, the Federal Funds rate was raised by 25 bps to a range of 1.75% to 2.0%. However, the big surprise is that the Fed signaled its intention to raise rates by an additional two times by year-end (Table 1)—bringing the rate to 2.25%-2.50%—and marking a significant increase from last November’s 1.00%-1.25% level. Notably, should the Fed’s median forecasts (which now suggest four rate hikes in 2018 and an additional three rate hikes in 2019) materialize, the terminal Fed Funds rate by the end of next year would be ¼ point above the Fed’s longer-run average—suggesting a moderately restrictive policy.