The big day is here.
The Federal Reserve’s final monetary policy announcement of 2016 is set for release on Wednesday afternoon at 2:00 p.m. ET.
Expectations are for the central bank to raise the target range for its benchmark interest rate by 0.25% to 0.50%-0.75%. This would mark the second straight December the Fed has raised interest rates and the second time since the financial crisis it has increased its benchmark target range.
Wednesday is also a busy day for the US economy outside of the Fed meeting — which should be the final major market-moving event of 2016 — with reports on retail sales, producer prices, and industrial production due out in the morning.
Fed highlights
Along with the Fed’s policy statement due out at 2:00 p.m. ET, the FOMC’s latest economic projections will also be released. These projections include the “dot plot,” which has gotten considerable attention in recent years, and is an overview of where Fed officials see interest rates at points in the future.
“Low unemployment and fiscal easing may ultimately warrant a faster pace of rate hikes by the FOMC,” Goldman Sachs economists Zach Pandl and Jan Hatzius wrote in a note to clients last week.
“However, we think most officials will be reluctant to bake that into their projections at this time— the outlook for fiscal policy is still highly uncertain, and revising up the dots risks sending an overly hawkish message… We therefore expect the median funds rate projections in the [Summary of Economic Projections] to remain unchanged—showing a two hike pace for 2017, and a three-hike pace for 2018 and 2019. For next year, an unchanged median looks like a close call: seven participants had an end-2017 funds rate target at the September meeting of 1.25.”
Pandl and Hatzius add that the election of Donald Trump could “significantly” alter the outlook for Fed policy in the coming years given the uncertainty around fiscal policy, trade, immigration, and the makeup of the Fed itself.
For now, however, Goldman expects the Fed to remain focus on the data that has already come in and not look too far out into the future.
Or as economists at BNP Paribas wrote, “Undoubtedly, she will be asked by reporters what recently proposed fiscal policies mean for the economic outlook. Her message will likely be that it is too soon to speculate on the nature of future fiscal policy, but that it may well affect both the growth and inflation outlooks.”
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Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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