The Federal Reserve has been infamously overoptimistic about the US economy in recent years, prompting them to frequently revise down their forecasts for economic growth as the year progresses.
It's time to start paying attention to the dot plot
Markets are pricing in a 100% chance the Fed hikes at the conclusion of Wednesday's meeting.
Yet Wall Street will let bygones be bygones this week as the Fed looks set to raise interest rates by another quarter point. That’s because, with the widely-telegraphed rate increase all but baked into expectations, the market’s attention is now turning to the projected path of interest rates — that is, how quickly will the Fed raise rates later this year.
Such expectations were ratcheted higher recently by a string of rather hawkish comments from top central bank officials.
The comments, in addition to a stronger than expected jobs report for February, prompted many market participants, who had originally simply pushed forward the timing of the next rate hike to March, to foresee another two increases, with even whispers of a third, for the remainder of 2017.
Economists at Goldman Sachs now see the Fed hiking not just in March but also in June.
Morgan Stanley offers a similarly hawkish outlook: “
However, just as the dots have been inaccurate in the past, they might just be wrong about the future as well. But that may not matter for the immediate market reaction, which will hinge on how the Fed sees the future, not the future itself.