The Fed meets this week and everyone expects them to move managed rates up another 25 basis points. This move would bring the total move to 100 basis points since the Fed started to normalize monetary policy in December 2015. This move by the Fed is already priced in the bond market so we do not expect any reaction to the move. The bigger issue will be the revised forecasts for 2018 by Fed members. The prior forecasts for both economic growth and inflation did not include the expectation of tax reform being passed. This revised forecast should include lower taxes. Investors will focus on Fed expectations for the impact of lower corporate taxes on capital spending and ultimately inflation. Prior guidence from the Fed called for three rate increases in 2018, with the risk now being four or more increases with faster growth and higher inflation pressures after the tax cut.

The economic data released in the last two months has been strong enough to allow the Fed to move faster without running the risk of causing the economy to slip into recession…

ProBank Austin Advisor – December 11, 2017