Wednesday, December 16, 2015

Fed Flash: Rates Increase 1/4 Point For First Time Since 2006

My rate forecast back in March has been fulfilled as the Fed finally, in a widely anticipated move, raised the Fed Funds rate 1/4 of a point today. The current Funds rate is now a target range between .25% and .50%. So, with slight bragging aside, 2016 seems to be far more difficult to forecast than 2015. The economy is relatively healthy, but far from robust. There is very little inflationary pressure, and wages are just now starting to see an inkling of acceleration. GDP forecasts are in the 2.5% range for 2016. Those forecasts would have to be topped for the Fed to do anything dramatic on the interest rate front. From this vantage point, I think the Fed will gradually try to put a couple of bullets back in the holster, so I see a gradual increase in rates for 2016. My forecast, three rate hikes in 2016 of a quarter point each.

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