Not so long ago, the Fed’s representatives announced that they had improved their expectations regarding the U.S. economic growth prospects in 2015.
Previously, it used to be expected that the American economy is likely to gain 1,9% at most in 2015. However, the revised forecast says that the world’s biggest economy is probably going to gain 2% this year. However, the Fed’s economic predictions for 2016 and 2017 now seem to have been downgraded.
Still, based on the mentioned information as well as the charts provided by the Fed, we may well expect the Fed to consider raising the ultra-low interest rates for the first time in many years later this year. If this happens, this is going to be a one-time raise this year. However, the series may well be continued next year. The highest rate hike expected is 0,4% even despite the fact that this summer there were expectations that the Fed may well raise the rates by 0,65 at a time.
At the same time, as far as longer-term prospects are concerned, the Fed expects the U.S. GDP to grew by 2% on average while the overall forecast is down to 1,8-2,2%. In summer, the figures used to be at 2 - 2,3%.
Meanwhile, the Fed expects the U.S. rate of unemployment to fall from 5,1% down to 5% against the previous forecast of 5,3% this year. Over the next 2 years, the rate of unemployment is expected to drop below 5% down to 4,8%. If this is the case, this is going to be below the long-term prediction of 5%.
As far as inflation is concerned, together with consumer spending, it is expected to drop from 0,7% down to 0,4%. Over the next 2 year, it is going to drop from 1,8 to 1,7% and from 2% down to 1,9% in 2016 and 2017 respectively.
At the same time, 13 of 17 FOM members assume that 2015 is still the best year for the first interest rate hike. For those who don’t remember, the last time the Fed raised the interest rates was 2006. 3 members assume that it is necessary to wait for 2016 before raising the rates and only one members is convinced that there should be a 2-year delay.
The latest FOMC meeting resulted in the decision to leave the interest rates unhanged at 0,25%. As you probably know, the key interest rate has been that low over the last 6 years since the latest financial crisis. With that said, the likelihood of the first interest rate hike until the ned of 2015 is still pretty high.
