U.S. Outlook: Interest rate normalization is ‘hurry up and wait’
“Hurry up and wait” pretty well describes the state of monetary policy today as the Fed goes further down the path of interest-rate normalization.
With the March rate hike decision, the FOMC, in my opinion, took the opportunity to fire a shot across the bow against rapidly tightening labor markets, rising consumer inflation, and stock market gains that some analysts find excessive given the current economic environment.
For more on these developments, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on March 17.Key observations:
- Some analysts are starting to toy with the idea of a more aggressive Fed delivering four rate hikes this year, but we are sticking with our forecast of three.
- Despite all the action in the labor market, prices, and sentiment measures, GDP growth in the first quarter is likely to be underwhelming.
- Consumer spending appears to be slowing significantly in the first quarter.
- If GDP growth and inflation re-accelerate over the summer as we expect, the Fed can comfortably move again in September.