FEBRUARY 11, 2019 – ANALYSTS THINK RATES WILL STILL MOVE UP IN 2019
Bloomberg experts believe additional rate hikes are closer than we think. Despite the Fed’s last statement, which put expectations for increases on hold, rising inflation expectations and growth trends pushing unemployment lower, wages higher and solid business fundamentals will drive rates up.
Fundamentally the economy is sound, and, despite the ambivalence in the last statement, for the Fed to cut rates the hard data will have to weaken. The January jobs number was strong and factory outputs are moving ahead steadily despite slowing global growth and tightening financial conditions. The 3.2 percent growth rate we saw in 2018 was the fastest since 2004, and should translate into firmer inflation.
The view is the Fed is going to allow the data to get rate normalization back on track and direct markets to the conclusion additional hikes are warranted. Bloomberg believes the Fed will follow, not lead, the reshaping of expectations.
Bloomberg thinks there will be two hikes in 2019, Q3 and Q4. Their view is that the Fed over corrected in January to calm markets, but rising inflation expectations and growth trends will allow the FOMC to return to their course of “gradual increases”. Using swaps today to lock into lower rates can allow you to mitigate the effects of rising interest rates later this year.