The question of how many times the Fed or, by extension, any centralised banking authority will hike interest rates is one that’s always on the minds of savvy forex traders, the world over, because they know just how significant an effect news of this nature can have on the forex market. The American Federal Reserve is a particularly powerful body because of the popularity of the US dollar, along with America’s superpower status so when it comes to US interest rates, the financial world is watching closely and listening intently.
2008 Financial Crash
Almost nine years after the global recession which threatened to plunge the US into a second Great Depression, the Fed has finally indicated that it believes the time is right to begin tackling the country’s massive $4.5 trillion balance sheet, starting in October.
In 2008, the central bank began buying trillions of dollars’ worth of bonds in an unprecedented effort to quell the economic nightmare it suddenly found itself in, following the collapse of the housing market.
Now, it seems, the time has finally come to push interest rates back up and see if the US economy can stand on its own two feet, once more.
2017 US interest rate hikes
The Fed has already hiked interest rates twice this year, once in March when it rose to 0.75%-1%, then again in June to 1%-1.25%. The initial plan was to raise interest rates for a third time this year; this was first scheduled for October, but now there’s rumours of a December hike, though many analysts believe that US interest rates won’t rise again until well into 2018, so who knows?
Many attribute the Federal Reserve’s reluctances to follow through with initial plans and raise interest rates for the third time this year (presumably to 1.25%-1.5%) to the onslaught of natural disasters the country has, in 2017, suffered, namely, hurricanes Harvey and Irma. Indeed, if hurricane damage is 'severe enough,' the Fed could actually lower rates, said strategist Mark Grant.
With only a couple of short months to go until the new year, it seems increasingly likely that the Fed will indeed hold off on raising interest rates again until 2018, though, given the recent news of the rise in consumer inflation, the prospect of the Fed lowering interest rates seems, at this point, very unlikely.
Interestingly, recent reports suggest rises in the price of gasoline, brought on by hurricanes Harvey and Irma, respectively, mean the Fed is, in fact, more likely to raise interest rates sooner rather than later – something of a paradox that, admittedly…
2018 interest rate hikes
In August of this year, CNBC reported that the most recent projections from Fed officials indicate anticipation of one more rate hike this year, followed by three in 2018 and then three or four more in 2019 to bring the funds rate to approximately 3% from its, at the time, 1.16% (in the 1.00% to 1.25% target range).
However, at time of writing (end of October 2017), this has all changed and now it seems unlikely interest rates will rise again this year, with many claiming that the Fed won’t authorise another hike until ‘well into 2018’, meaning June, if not later.
CNBC reported, in September, that high-profile trader Art Cashin had warned that the current Federal Reserve leadership will likely not be around next year and he doesn't believe the central bank will implement three interest rate hikes in 2018, as was planned. This seems reasonable seeing as the scheduled number of hikes was not met in 2016 and, as we approach the close of 2017, it seems more and more likely that the same will be true of this year.
As things stand, most respected traders, analysts, and financial journalists fear that 2018 will see just one interest rate hike which won’t take place until June or beyond. But opinions appear to be swinging on an almost weekly basis so, ears to the ground on that one.
“I think if the markets are discounting December [Fed rate hike] just on the back of this [US job growth slowed in August], it’s probably premature […] Keep in mind that there is going to be a lot of things happening in the U.S. between now and December, including all of the legislation in Congress that needs to be passed”, Thierry Albert Wizman, global interest rates and currencies and strategist at Macquarie Ltd, told Reuters, in September.
At the bookies, odds are more or less even on whether the Fed or central bank will raise rates next June; this can be a good indicator of things to come, funnily enough. Nobody seems to want to call it, though most believe the next hike will come in the second half of 2018, not the first.
As with all things forex trading related, just how many interest tax rates the Fed or the central bank will authorise is shrouded in mystery and, as such, we find ourselves once more at the mercy of speculation, though thankfully not blind speculation.
To answer the question that this article puts forth, based on the knowledge we have at hand, it seems very unlikely that US interest rates will raise again this year, and equally unlikely that they will raise in the first half of 2018.
Moreover, seeing as most experts have opined, in recent weeks, that they believe a hike won’t occur until June 2018, at the earliest, but most likely much later, it seems highly probable, at this point, that 2018 will see just one interest hike which will likely take place in late summer/early autumn.
Of course, this is liable to change so be sure to keep an eye on the American news cycle and update your knowledge/predictions accordingly. And don’t forget, it’s never too early to open a position, if you think you see a trend/pattern, even if the experts are correct and interest rates don’t rise until the second half of 2018.
Thanks, and, as always, happy trading!