Joe Brusuelas Previews Today's FOMC Meeting
The Federal Open Market Committee at 2 p.m. Wednesday will release its economic projections for the next two years. At around the same time, the Fed will announce whether or not it will move to raise interest rates this month and likely hint at the timing of future rate increases.
Benzinga spoke with Joe Brusuelas, chief economist at McGladrey LLP, about what to expect.
Brusuelas first offered predictions as to what the Fed's economic projections could be. He believes the Fed is likely to increase its projected unemployment due to an expanding workforce. He also said that the growth forecast for 2016 and 2017 could fall because of slowing productivity. He "would not be surprised to see the long-term growth rate reduced to 2.1 [percent]."
While Brusuelas doesn't see an interest rate increase coming this month, he does see momentum shifting toward an eventual hike. He expects "a growing chorus of...Fed members moving into the [two] hike camp," meaning they would support two separate hikes this year—one in September and another in December.
Moving forward, he predicts a "slightly faster pace of hikes in 2016 [and] an aggressive Fed in 2017." This hawkishness would be prompted, according to Brusuelas, by the increasing probability of growth over the next two years well exceeding the projected long-term rate.
If the Fed does indeed indicate such an approach, Brusuelas said that equities could sell off while bond yields would rise.
When Chairwoman Janet Yellen addresses the press at 2:30 p.m., however, Brusuelas expects her to try to temper investors' fears of a rate increase. He is looking for her to "[reinforce] the lower for longer mantra" and assure observers that "the pace, not the timing, of hikes is the key."
Yellen will likely maintain, according to him, that the pace of hikes will be gradual and orderly and thus not a significant threat to markets.
The SPDR S&P 500 ETF Trust (NYSE: SPY) recently traded at $210.64, up $0.39.
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