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Will the Fed Raise Rates Again in 2018?

Will the Fed Raise Rates Again in 2018?

| August 07, 2018
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Recently Cetera Investment Management wrote a Sightline article about the likelihood of additional Fed rate increases in 2018.  The entire article follows below.  If you have questions about this article or about your portfolio, please contact myself or Tim Swartley at (267) 384-5300.

Fed Tightening Expectations

Key Takeaways:


- Steady, rising growth and inflation nearing target levels has led the Federal Reserve to raise
interest rates twice this year, with a third hike widely expected in September.

- The Fed left rates unchanged at its August 1 meeting, but upgraded its view on the economy;
thereby hinting that a fourth hike may be warranted in December.

- Despite our current outlook for four rate hikes in 2018, global trade tariffs and other growth risks,
may make the central bank’s fourth quarter rate decision somewhat less certain.

Since ending its zero-interest rate policy in 2015, the Federal Reserve has raised its key fed funds
lending rate a total of seven times, each a quarter-point (0.25%) increase to the current 1.75%-
2.00% range. The most recent hike occurred on June 13 with the Fed’s Open Market Committee
(FOMC) policy statement denoting the resiliency and steadiness of GDP growth, the strength of the
labor market and inflation that is finally nearing the Fed’s target level.


Unemployment remains low, close to levels not seen since 1969. Wages are growing slightly faster
than inflation, with hourly earnings rising 2.7% year-over-year in June. Meanwhile, while the U.S.
economy had expanded at a 2.2% annualized rate in the first quarter, and that pace has nearly
doubled to 4.1% in the first of three-second quarter growth estimates from the Commerce
Department.


With this economic backdrop, the Fed did not raise rates in its August 1 meeting, but did upgrade its
economic outlook to “strong” from “solid.” The CME Group’s FedWatch Tool, now shows near
certain odds for a September rate hike. Assuming the Fed sticks to its “gradual” rate increase
practices of quarter-point hikes, the implied odds for a September 26 rate hike jumped to 93.6%, and
if the Fed determines that a fourth rate hike is warranted this year, it would likely occur in December
with the implied probability rate-hike odds currently at 71.7%.


We believe that Fed Chairman Powell will guide the FOMC toward another gradual rate hike on
September 26. Powell is scheduled to host a press statement that day and the Fed will release an
updated summary of economic projections. While a trade agreement with the European Union has
been reached regarding industrial goods, a much more formidable trade challenge remains with
China.


The United States imports nearly four times more goods than it exports to China, so China does not
have much room for long-term tariff retaliations. China may resort to devaluing its currency to make
U.S. imports more expensive and make Chinese exports less expensive for Americans. A possible
Chinese currency devaluation could give the Fed pause on its fourth rate increase, as a Fed rate
increase would likely cause the dollar to strengthen even further. Because
we currently think a fourth rate hike is likely, we are monitoring trade talks and currency devaluations
as we assess the possibility of more rate hikes.

This report is created by Cetera Investment Management LLC

About Cetera® Investment Management
Cetera Investment Management LLC is an SEC registered investment adviser owned by Cetera
Financial Group®. Cetera Investment Management provides market perspectives, portfolio
guidance and other investment advice to its affiliated broker-dealers, dually registered brokerdealers
and registered investment advisers.


About Cetera Financial Group®
Cetera Financial Group (“Cetera") is a leading network of independent firms empowering the
delivery of professional financial advice to individuals, families and company retirement plans
across the country through trusted financial advisors and financial institutions. Cetera is the
second-largest independent financial advisor network in the nation by number of advisors, as well
as a leading provider of retail services to the investment programs of banks and credit unions.


Through its multiple distinct firms, Cetera offers independent and institutions-based advisors the
benefits of a large, established broker-dealer and registered investment adviser, while serving
advisors and institutions in a way that is customized to their needs and aspirations. Advisor
support resources offered through Cetera include award-winning wealth management and
advisory platforms, comprehensive broker-dealer and registered investment adviser services,
practice management support and innovative technology. For more information, visit cetera.com.


"Cetera Financial Group" refers to the network of independent retail firms encompassing, among
others, Cetera Advisors, Cetera Advisor Networks, Cetera Investment Services (marketed as
Cetera Financial Institutions), Cetera Financial Specialists, First Allied Securities, and Summit
Brokerage Services. All firms are members FINRA/SIPC.

Disclosures
The material contained in this document was authored by and is the property of Cetera Investment
Management LLC. Cetera Investment Management provides investment management and
advisory services to a number of programs sponsored by affiliated and non-affiliated registered
investment advisers. Your registered representative or investment adviser representative is not
registered with Cetera Investment Management and did not take part in the creation of this
material. He or she may not be able to offer Cetera Investment Management portfolio
management services.


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tax, or legal advice to any individual without the benefit of direct and specific consultation with an
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No independent analysis has been performed and the material should not be construed as
investment advice. Investment decisions should not be based on this material since the
information contained here is a singular update, and prudent investment decisions require the
analysis of a much broader collection of facts and context. All information is believed to be from
reliable sources; however, we make no representation as to its completeness or accuracy. The
opinions expressed are as of the date published and may change without notice. Any forwardlooking
statements are based on assumptions, may not materialize, and are subject to revision.

All economic and performance information is historical and not indicative of future results. The
market indices discussed are not actively managed. Investors cannot directly invest in unmanaged
indices. Please consult your financial advisor for more information.


Additional risks are associated with international investing, such as currency fluctuations, political
and economic instability, and differences in accounting standards.

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