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As expected, the Fed's rate is up by 25 bp

  • 14 December 2016
  • Philippe Waechter
  • Federal Reserve
  • USA
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The Federal Reserve has pushed up its main interest rate by 25 bp. The corridor in which the fed funds can fluctuate will now be [0.50 ;  0.75%] instead of [0.25 ; 0.50%]. The last rate change was December 2015. 
For 2017, the median value of the fed funds rate is expected at 1.375% which means 3 rate increases. The same pace is expected for 2018 and 2019 with rate anticipated at 2.125% and 2.875% respectively. 
The long term equilibrium value for the fed funds is marginally higher at 3% versus 2.9% in September. 
The global Fed’s scenario remains weak. The Fed tells us that the business cycle is still consistent with a secular stagnation framework: low growth, low inflation and low interest rates. The economy is not back to its pre-crisis momentum. 
The long term growth rate is just 1.8% unchanged from September forecasts and the inflation rate is expected to converge to 2% in 2018. It’s also its long term value (as in September) 
I was not able to watch the press conference (no connexion for a video in a train even a TGV) but my perception on the future of monetary policy is unchanged from what I said earlier today (see here)

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  • USA
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