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With the Federal Reserve set to wrap up a two-day policy meeting Wednesday afternoon, it’s as good of a time as any to take a look at the job market participants have done anticipating interest-rate policy.
Deutsche Bank strategist Jim Reid offers just such a look in the chart below, underlining that the record isn’t so great:
The fed-funds futures market sees U.S. rates effectively stuck at around 0% for the next three years, but over the last two decades market participants have rarely been accurate in its assessment of the future, he noted.
After the financial crisis, expectations ran too hawkish for the past six to seven years, Reid observed. Then, as traders started to lower expectations “along came a larger hiking cycle than expected between 2016-2018. From this point on the market has again been too hawkish.”
The Fed’s rate-setting Federal Open Market Committee will conclude a two-day policy meeting Wednesday, with a statement due at 2 p.m. Eastern followed by Chairman Jerome Powell’s news conference at 2:30 p.m. Economists and investors don’t expect any major tweaks to policy, but look for Powell to maintain a dovish tone, signaling the central bank is committed to maintaining loose monetary policy and is prepared to do more if needed to avert a further economic downturn.
Stocks were holding on to modest gains ahead of the Fed decision, with the Dow Jones Industrial Average DJIA, +0.37% up around 74 points, or 0.3%, while the S&P 500 SPX, +0.87% advanced 0.8%.
