Fed three hikes? Somewhat skeptical - Rabobank

Analysts at Westpac explained that despite the Fed’s upward shift in the dot plot, they are skeptical of 3 hikes in 2017.

Key Quotes:

"Keep in mind that they expected 4 hikes for 2016 back in December 2015 and we have seen only 1." 

"There are several reasons for our skepticism."

"First, the implementation lag of infrastructure spending can be considerable. Finding shovel ready projects can be a challenge."

"Second, the impact of infrastructure spending on GDP growth may also take time. Note that the $305bn highway bill of December 2015 has yet to have a positive impact on GDP growth."

"Third, the positive impact of the fiscal impulse may be mitigated by the negative fall-out from Trump’s trade policies."

"Finally, the voting members of the FOMC will be more dovish in 2017 than in 2016, with the three hawkish September dissenters George, Mester and Rosengren losing their voting rights. Therefore, we still expect only one rate hike in 2017, most likely in December. If the fiscal policy impulse hits the economy sooner than we expect, and with more impact, the risks to our forecast lie to the upside. In contrast, if the fiscal impulse disappoints in terms of timing and size, or if trade conflicts bring substantial damage to the US economy, the risks lie to the downside."

FOMC Minutes: Policymakers generally agreed to continue to closely monitor inflation