APRIL 16, 2018 – FED PRESIDENTS’ REMARKS INDICATE FURTHER RATE HIKES

As we await the release of the first quarter GDP data at the end of April and what it bodes for the pace of interest rate changes, two Fed presidents made statements last week.

James Bullard, president of the St. Louis Fed, said the FOMC statement should be changed to reflect monetary policy is no longer accommodative, rather, it is now closer to neutral. “Our language is a bit outdated as the statement is still reflecting language that was adopted when we were at the zero bound or near zero policy rate.”

Boston Fed President Eric Rosengren said unemployment may drop more than his colleagues expect, raising the potential risk the US economy will be derailed in a “boom-bust scenario.”  Rosengren said trade disputes and overheating are the biggest short-term threats to US expansion.  He also anticipates inflation exceeding the current FOMC forecast.  As such, “Somewhat more tightening may end up being needed than is currently reflected in the projected median for the federal funds rate.”

If the GDP numbers do not disappoint, we should expect rates to rise in June and perhaps twice more this year.  Hedging against these anticipated hikes through the use of interest rate swaps will save your business on higher interest rate expenses on your variable rate loans.

 

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