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Fed Meeting – Watch the dots

Alongside the Fed’s latest policy statement, markets will also get an updated set of economic projections from the Fed for GDP and inflation, as well as an updated “dot plot,” which shows where Fed officials expect benchmark interest rates to be in the future. Given the hawkish commentary from Fed officials, we think the dots will likely shift higher. “The doves, such as Fed Governor Brainard and Chicago President Evans, have seemingly become more comfortable with the hiking cycle, which will likely mean moving from the 2 to 3 hike camp. Moreover, the hawks have probably become more enthusiastic about the prospects for a faster hiking cycle. “However, the big question is about the moderates; we would need to see 4 FOMC officials revise expectations from 3 hikes this year to 4 hikes to move up the 2017 median. It is a close call, but we think we will fall short, which means the median dot is unchanged even though the average dot will head higher. As such, the median dot will still imply 3 hikes for this year.”

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