Survey Shows Economists Lack Confidence in 2017 Rate Hikes

According to a recent Financial Times survey, a majority of top economists predict the Fed won’t be as aggressive on raising interest rates as it suggests. After last week’s rate hike announcement, the Fed’s own dot plot showed it had planned for three federal funds increases for 2017, according to MarketWatch. However, the majority of economists in the Financial Times survey were confident with only one hike in June.

The disconnect between what economists are predicting and what the Fed is pushing highlights the different levels of confidence in the US economy. The Fed seems to be overplaying its hand — a strategy that makes its actual lack of confidence that much more evident. Peter Schiff explains:

“The only reason the Fed raised rates this December is the same reason they did so last December: they did it despite having no confidence in the economy, but they didn’t want to send a message that they were that worried. They raised interest rates by the smallest possible amount. They also did it to try and preserve their credibility when it comes to talking about future interest rates.”

Recently, Peter made similar observations about the Fed’s over-estimate on GDP growth. The Fed is now posturing the same way it did last year. They had forecast GDP growth for 2016 to be 2.4%, but the economy is going to end up growing below 2% per official numbers.

“I don’t think the economy is growing at all because I don’t believe the official GDP numbers,” Peter said. “They understate inflation, and therefore overstate growth. Even with that built in, we are not going to achieve the 2% the Fed anticipated. It’ll be south of 2%.”

The probability of a US recession was another item on the Financial Times survey, which showed a vast majority of economists giving a 10% to 30% chance for a recession over the next 12 months. The outlook for a recession no doubt informed the respondent’s estimates of fewer rate increases.

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