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Fed Not Crying Wolf

In early February, following the last Fed statement, March rate hike probabilities fell to just 15%, with the markets expecting only two rate hikes in 2017. In contrast, we explained why faster rate hikes were likely and declared in an ECRI report: “The Fed will be spurred to hike rates more than most believe. That is the inescapable logic of the current state of the economic cycle.”

Today, a March rate hike is seen as a virtual lock, with three or four rate hikes this year considered the most likely scenario (chart), meaning that expectations have shifted dramatically toward ECRI’s view. That cyclical perspective has proved to be just as prescient this year as it was last year, when the Fed failed to deliver on its rate hike promises, following ECRI’s declaration that the “Fed’s rate hike plans are on a collision course with the economic cycle.”

As always, ECRI’s forecasts have been rooted in its analysis of cyclical forces, based on its leading indexes of economic growth and inflation. For a more detailed look into our Fed rate hike outlook, please see this excerpt from February’s U.S. Essentials report.

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