Dot plot: what the Fed really think about the elections - Rabobank

Analysts at Rabobank explained that the December 13-14 meeting of the FOMC will not only lead to a rate decision, but also to new rate projections. 

Key Quotes:

"The previous dot plot, published in September, implied two rate hikes in 2017. Since then, economic data have evolved in line with the Fed’s expectations, so that should not be a reason for a major shift in the dot plot. However, some in the FOMC may share the market’s view that the fiscal policy initiatives by the new administration will give a big boost to the economy in 2017. On the other side of the spectrum, some may be concerned about the adverse impact of trade policies on the US economy. While Fed speakers have been careful in their comments on the election outcome, the dot plot will reveal what they really think about the economic consequences. 

"While we may still see two hikes in the new plot, or more, we remain skeptical of such a scenario. First, the implementation lag of infrastructure spending can be considerable. Finding shovel ready projects can be a challenge. Second, the impact of infrastructure spending on GDP growth may also take time. Note that the $305bn highway bill of December 2015 has yet to have a positive impact on GDP growth. Second, the positive impact of the fiscal impulse may be mitigated by the negative fall-out from Trump’s trade policies. Therefore, we expect only one rate hike in 2017, let’s say December. If the fiscal policy impulse hits the economy sooner than we expect, and with more impact, the risks to our forecast lie to the upside. In contrast, if the fiscal impulse disappoints in terms of timing and size, or if trade conflicts bring substantial damage to the US economy, the risks lie to the downside."