The Federal Reserve could increase a key short-term interest rate to as much as 2 percent by the end of next year, JPMorgan Chief U.S. Economist Michael Feroli said Thursday, a day after the central bank concluded its two-day meeting hinting of a monetary tightening later this year.
The fed funds rate will “probably be more like 1.75 percent to 2 percent” by the end of 2016, Feroli said on CNBC’s “Squawk Box.”
“If we get to 2 percent, that would be accommodative by normal measures.” To get there, he said, the Fed could hike rates “every other meeting perhaps” once the tightening cycle begins.
The Fed policy statement released Wednesday afternoon and subsequent news conference with central bank Chair Janet Yellen provided indications that near-zero percent rates are on track to move higher for the first time since 2006 sometime this year, with possibly two moves in store.
The debate on Wall Street seems to be centered on the first increase at either the September or December meeting—both gatherings are alsoscheduled to conclude with Yellen news conferences.
Feroli said he’s still betting on September for liftoff, though with “less conviction” after the latest Fed developments. “If it looks like the second quarter [economy] is going to be pretty decent, I think September can be right back as a frontrunner.”
One thing is clear, the Gartman Letter editor said, Yellen is prepared to raise rates only if the economy appears to be strong enough. “She made it abundantly clear they are going to be totally, completely data driven,” he said.
Despite all the transparency around the possible Fed moves, he said, “Inevitably, there’s going to be more volatility around that move into the first Fed rate hike no matter how hard they try to have a clean, clear message to the markets.”
Guha is vice-chairman and head of the global policy and central bank strategy team Evercore ISI.