FED benchmark interest rate has been increased to 0.5 to 0.75% and is projected to go up 3 times each year till 2019.
3 interest rates in 2017, 2018 & 2019 by dot plots
0.5 to 0.75 in dec 2016 (risk-free rate hovers 2.5 to 2.6%)
1.25 to 1.5 in 2017
2 to 2.25 in 2018
2.75 to 3 in 2019
risk-free rate will be at least 5.25% in 2019
Fed median interest rate projections:
As expected, fed hiked by 0.25% in De 2016 but made a slightly hawkish statement about further interest rate hikes.
If FED really hikes 3x interest rates each year, we'll be having high interest rates in the future as predicted in our previous post.
Why are we so confident that higher interests are coming?
ReplyDeletePresident-Elect Trump had said that he would boost government spending and use fiscal policy to reinvigorate the US economy. However, we all know that USA has no money but to issue more bonds to raise the money needed. Therefore, more bonds mean higher interest rates because of more competitions. If Trump reneges on his propaganda, then all bets are off.