What to watch for in the Fed’s final meeting of 2017

With traders fully primed for an interest-rate increase at the Federal Reserve’s final meeting of the year, investors’ focus on Wednesday will be on Fed chair Janet Yellen’s signals about 2018 and 2019, and on the impact of Donald Trump’s tax cutting package on the outlook.

Traders are pricing in a quarter-point increase in the Fed’s target range to 1.25-1.5 per cent, in what would be the third upward move in 2017. Key questions are whether the Fed’s post-meeting statement notes any slight firming in recent inflation numbers and how it characterises America’s growth and employment performance.

With growth surpassing a 3 per cent annual rate in recent quarters and tax cuts looming, upgrades to the Fed’s economic projections are likely.Crucially, the market will be scouring the Fed’s interest rate outlook. The so-called dot plot of interest rate predictions suggested in September that there will be three quarter-point increases next year. Some Wall Street analysts predict that could be upgraded to four.

Ms Yellen is likely to be quizzed on the Fed’s expectations for tax cuts and their potential impact on growth, as well as monetary policy. Investors want to know just how stimulative the Fed expects Republicans’ proposed tax reductions to be, and how much extra tightening it will pencil in as a response.

Source: Bloomberg Pro Terminal

Trader Bozhidar Arabadzhiev

Original post: What to watch for in the Fed’s final meeting of 2017

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