How the Fed and Markets Are Not in Sync on Interest Rates

After seven years of zero interest rates, the Federal Open Market Committee (FOMC) is preparing markets for rate hikes, likely to start in September. The FOMC has not decided on the precise timing of the first rate hike but has stressed that interest rates will be increased gradually over an extended period so as not to disrupt the recovery. In other words, interest rates will remain low for a long time. The FOMC’s forward guidance has included the so-called dot plot [pdf], which shows, for each FOMC participant, the path of interest rates compatible with its growth, unemployment and inflation forecast. It is the path of interest rates that the FOMC would like to see. Read more

 

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