The Fed Might ‘Surprise’ Markets with its Hawkishness in 2018

The tax cuts and ‘elevated asset prices.’ Another rate hike is baked in for the Fed’s meeting next week, which will lift the target for the federal funds rate to a range between 1.25% and 1.50%. ‘A majority’ of economists now expect three rate hikes in 2018, up from two rate hikes just a few weeks ago, Reuters said this morning, based on its poll conducted just before the Senate passed the tax cuts.
The tax cuts are making economists rethink what the Fed will do next year. According to Reuters, ‘the forecast risks have shifted toward higher rates, and faster.’
But are expectations still too low? Could an increasingly hawkish Fed surprise the markets with more rate hikes?
The three rate hikes next year that economists are now expecting just put them in line with the Fed’s own projections, published well before the tax cuts had become a sure thing.

This post was published at Wolf Street on Dec 4, 2017.