The Fed left its policy rate unchanged at between 0.25% and 0.50% at last week's FOMC meeting, but it appears to be firmly on track for a December hike. However, the fed funds rate is likely to increase more gradually over the next few years than we had previously anticipated. We now forecast only three rate hikes next year (previously four), taking the fed funds rate to between 1.25% and 1.50% by end-2017. We still expect four rate hikes in 2018, taking the fed funds rate to between 2.25% and 2.50% by year-end. Our forecasts are only slightly more hawkish than the Fed’s own projections, with the bigger gap still between market expectations and economist forecasts generally.
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