As widely expected, the Fed did raise managed rates by 25 basis points last week. This now takes the target rate for Fed Funds up 125 basis points since the Fed began its effort to normalize monetary policy in December 2015. One hundred of these increases have been executed in the last twelve months. This last increase was fully priced in the bond market as market interest rates were little changed after the FOMC meeting. The Fed did not change its guidance of three more increases in 2018, but did extend their time period to include two increases in both 2019 and 2020. Should they follow through with these moves it would take the Funds rate up to 3.25% and the Prime rate up to 6.25% over the next three years.

The Fed did increase their Real GDP forecast for 2018 to 2.5% from the previous 2.1% expectation in the September release. The mystery of why no inflation in an environment of low unemployment and strong consumer final demand data remains unanswered by the Fed..

ProBank Austin Advisor – December 18, 2017