The projections made by Fed officials back in June indicated that they were setting a pretty low bar for hiking interest rates later this year. Nevertheless, despite those low expectations, officials were almost evenly split on whether rates would need to rise once, twice or even three times this year. The minutes of the July FOMC meeting confirmed that, in considering when to hike rates, “many participants... would be looking for evidence that the economic outlook was evolving as they anticipated”. As things stand now, GDP growth is likely to be higher than the Fed’s June projection and the unemployment rate is likely to end the year even lower. Under those circumstances, we disagree with the dovish reaction to the release of those minutes last week. Not only do we think that the Fed will raise rates in September, but there would appear to be a good chance of a second hike in December as well.
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