Fed PolicyMortgage

Fed chair won’t matter in 2018 – expect to see 4 interest rate hikes

Experts predict core inflation to rebound

According to one expert, it won’t matter who the Federal Reserve chair is in 2018, the market will still see four interest rate hikes.

Capital Economics released a report explaining that regardless of who is nominated to be the next Fed Chair, a rebound in core inflation could cause the Fed to raise interest rates four times in 2018.

“The components that have dragged core CPI inflation lower this year look set to reverse course, while the depreciation in the dollar since January will push goods inflation higher over the next 12 months or so,” the report states.

Fed Chair Janet Yellen also recently gave a bright outlook of the economy, forecasting inflation will soon bounce back.

For now, a rate hike in December is all but decided on, especially after today's higher-than-expected GDP growth of 3% for the third quarter. Earlier this month, one Fed member said he had penciled in an interest rate hike for December.

All eyes will turn to Washington next week, with President Donald Trump due to announce his nominee for Fed Chair. While some potential candidates, such as Yellen or Fed Governor Jerome Powell hold a more dovish approach to interest rate hikes, others, such as former Fed governor Kevin Warsh or Stanford University economist and former Department of the Treasury official John Taylor would take a more hawkish approach.

However, regardless of who Trump finally nominates, Capital Economics predicts the number of rate hikes will remain the same – one final hike in December for 2017 and four more in 2018.

But they aren’t the only one to make this prediction. At the Mortgage Bankers Association Annual Convention in Denver, HousingWire’s Ben Lane reported that Mohamed El-Erian, Allianz chief economic advisor, gave his view on the Fed chair nomination.

“Expect the Fed to hike interest rates in December. We may get a couple of rate hikes next year, regardless of who leads the Fed,” El-Erian said. “You should not worry about the Fed. I say that even though we don’t know who's going to be chair or vice chair.”

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