Maybe Not Three Hikes?

Chief Economist at Stifel Fixed Income (SF 74,71 +0,36 +0,48%), Lindsey Piegza, thinks that even after today’s GDP numbers, we still may not get three hikes after all. Fourth quarter GDP rose from 1.9% to 2.1% in the final third-round revision, slightly more than the 2% the market anticipated, according to Bloomberg. A moderate rise in inflation at the start of the year was more than enough justification for a March rate hike. But, going forward, a continued lackluster growth profile will make it increasingly difficult to suggest additional rate hikes are warranted, she says. “Particularly if energy prices stabilize in the coming months, removing the upward support to headline price measures,” Piegza believes. Simply put, if inflation stabilizes, we might not get three rate hikes this year. On Wednesday, San Francisco Federal Reserve President John Williams spoke to the Forecasters Club of New York where he said growth was mediocre. He cited a poor labor force participation rate in his comments. Without improvement in these areas, a pickup in top-line GDP would only serve to support a comfortable rise in inflation. So according to Williams, three or more additional rate hikes this year appears to be the appropriate pathway for policy. Williams is one of the more outspoken hawks on the Committee and doesn’t necessarily represent the majority opinion among policymakers, and furthermore, is not a voting member of the FOMC this year.