When the Federal Reserve raised rates on Wednesday, it intimated that one more rate hike is in the cards for 2017.
Not so fast, say market strategists interviewed by Financial Advisor.
The three strategists agreed that they see nothing in the economic data that would warrant another increase this year.
Roger Aliaga-Diaz, Vanguard’s chief economist for the Americas, wrote on Wednesday that he did not expect additional rate hikes in 2017, as inflation will not “rise meaningfully from current levels.”
For similar reasons, Paul Eitelman, multi-asset investment strategist at Russell Investments, also believes that the Fed is finished increasing interest rates this year.
“The Fed feels like they’ve achieved their full employment objective. They want to continue to tighten, but we’re not seeing strong enough economic fundamentals for them to continue at this pace,” says Eitelman. “They’re effectively done for 2017. Growth has been disappointing, inflation has been disappointing relative to forecasts, and if we remain stuck in mediocre growth, that should slow down the pace of rate hikes a little bit.”
Another Fed increase this year would place the funds rate at 1.4 percent. Eitelman believes that the Fed might be indicating that it’s willing to continue normalizing interest rates in a mediocre economy.
At San Francisco-based Charles Schwab Investment Management, Brett Wander, chief investment officer for fixed income, also argues that the Fed is probably done raising rates for this year.
“My crystal ball is broken. An additional rate hike is always possible, but it’s not anywhere near as likely as it might have been at the beginning of the year or a year ago,” Wander says. “If you look at market expectations, the market is pricing in only one additional rate hike in over the next 12 months.”
In addition to low inflation and slow growth, Wander says that despite low interest rates, the Fed is near “normal” based on the current market context.