Moody’s Analytics: Slowdown over, Fed on Tap to Raise Rates
May 29 2015 - 9:00AM
Business Wire
Moody’s Analytics, a leading provider of economic forecasts,
says that the US economic slowdown has ended, putting in place
conditions for the Federal Reserve to begin raising short-term
interest rates.
According to the report “U.S. Macro Outlook: The Slowdown Is
Over,” the negative effects of the tough winter have receded, and
the fallout from the West Coast port strike and effects of
declining oil prices on the energy industry will diminish. In
addition, wage gains are accelerating due to the steadily
tightening job market, which has eased concerns about disinflation
and deflation.
The economy will soon return to full employment and core
inflation will rebound to the Fed’s 2% target, likely in time for
September’s Federal Open Market Committee (FOMC) meeting, when
Moody’s Analytics expects the Fed will launch the first increase in
interest rates.
The rate hikes will be slow at first, as policymakers work
through any issues created by raising rates while there is a
surfeit of excess reserves. Policymakers will also want to gauge
the impact of the rate hikes on financial markets.
Rate hikes should increase more quickly beginning this time next
year once the economy achieves full employment and wage and price
pressures develop more fully. Moody’s Analytics expects the funds
rate to rise to near 3.5% by late 2017, which is close to the
economy’s estimated long-run equilibrium rate.
This is higher than the expectations of FOMC members, who
anticipate a federal funds rate of near 3.0% by late 2017. It is
also higher than the expectations of investors, who, as represented
by fed funds futures, believe the funds rate will barely reach 1.5%
by late 2017. Investors seemingly believe that economic growth and
inflation will be too low for the Fed to raise interest rates as
quickly as Moody’s Analytics and policymakers expect.
“Only one of these views is correct, and if the markets are
wrong, there could be a significant adjustment in long-term
interest rates, credit spreads, stock prices, and currency and
commodity markets,” says Mark Zandi, Managing Director and Chief
Economist at Moody’s Analytics.
While the impending volatility in financial markets will be
disconcerting and pose the biggest near-term threat to economic
optimism, the underlying economy should be strong enough to weather
it relatively gracefully.
For more information, visit Moody’s Analytics’ Dismal
Scientist.
About Moody’s Analytics
Moody’s Analytics helps capital markets and risk management
professionals worldwide respond to an evolving marketplace with
confidence. The company offers unique tools and best practices for
measuring and managing risk through expertise and experience in
credit analysis, economic research and financial risk management.
By providing leading-edge software, advisory services and research,
including proprietary analyses from Moody’s Investors Service,
Moody’s Analytics integrates and customizes its offerings to
address specific business challenges. Moody's Analytics is a
subsidiary of Moody's Corporation (NYSE:MCO), which reported
revenue of $3.3 billion in 2014, employs approximately 9,900 people
worldwide and has a presence in 33 countries. Further information
is available at www.moodysanalytics.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20150529005460/en/
Moody’s AnalyticsPRANITA SOOKAI, 212-553-4181Associate
Communications
StrategistCommunicationspranita.sookai@moodys.com
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