The Fed hints at 3 rate hikes

Whether the soup is really eaten that hot, however, remains to be seen. The brand new chairman van de bank (Jerome Powell) will be the deciding factor. A combination of the Fed's new interest rate path and Powell's press conference indicates that Powell will determine how that monetary soup will be eaten.

Official interest increased
The Fed's Interest Rate Committee has raised the official interest rate by 25 basis points. The reason for this was that the US economy is doing well and will continue to do well. The Fed is in a better mood about the economy, mainly because of US President Donald Trump's recently announced tax cuts. Those cuts will benefit economic growth in 2018 and 2019.

That the Fed would raise interest rates was what the market had expected. Out the 'dot plot' (an overview of the number of expected rate hikes) and the press conference can draw some interesting conclusions.

More raises
To begin with, the dot plot shows that the committee 3 interest rate hikes deems desirable in 2019. That's 1 more than members hinted in December. In addition, they believed that 2020 rate hikes were needed in 1,5 (which is actually not possible, but it was the result of the 'do plot'), but that has now become 2.

Provisional 2018 rate hikes remain for 2, but that masks the fact that the average has risen considerably. It was very close to whether the 'dot plot' had predicted 3 more increases. Of the 15 members, 8 indicated that they deem 3 (or fewer) rate hikes necessary in 2018. In addition, 7 others indicated that at least 4 increases are needed. 

With the increase in interest rates, there are still 3 between now and the end of the year. In short: if 1 of the committee members had signed a total of 4 interest rate increases, the average of the 'dot plot' would have looked completely different. The question is, of course, whether it is a matter of time before the average climbs to 4. That could happen in June.

Comments from Jerome Powell
At first glance, you might think that if the economy continues to run as it does now, the Fed won't just raise interest rates in June. It could then also announce that the main interest rate in the US could pick up in the second half of the year.

I don't expect the bank to make borrowing money 3 times more expensive. The reason for this lies in a number of comments from Jerome Powell. He said, for example, that the tightness in the US labor market will worsen when a "significant increase in wages" becomes visible. In short: Powell believes that the labor market is not yet too tight. That's important because it means no more interest rate hikes are needed.

Fed Chairman Powell also noted that there is nothing in the economic data to indicate an acceleration in inflation. Since fighting too high inflation is paramount and inflation is currently too low, we can also translate that comment into the fact that raising interest rates more often is unnecessary.

Group of up to 3 times
Those comments are very important, because they clearly indicate that Powell falls into the group that believes that interest rates should go up a maximum of 3 times this year. This is crucial, because it rarely happens that the chairman is outvoted. This would immediately lead to the conclusion on the markets that he no longer matters. That is why in the event of a split within the committee, the chairman usually determines the course.

If the Fed chairman is in the group of 'up to 3 increases' in the aforementioned dichotomy, then there is a good chance that interest rates will not go up more often. Unless he changes his mind. We'll see in June whether that will be the case. As things stand, the Fed is going to raise interest rates 2 more times this year; starting in June.