Chart of the week

Markets expect the rate hike cycle’s end is near

See where the Fed and markets expect interest rates to go by year-end 2019 and what that may mean for income-seeking investors.

December 7, 2018 | 1 minute read
Expectations for the Fed funds rate in December 2019
  • Fed policymakers generally remained on message this week touting the strength of the U.S. economy and preparing investors for more rate hikes despite the volatility markets have experienced in Q4 2018.
  • On Tuesday, New York Fed President John Williams noted the economy’s “really very strong” momentum and said that further rate hikes still make sense over the next year.1 Fed Vice Chair Richard Clarida echoed Williams’ optimistic outlook in a Bloomberg TV appearance this week, adding that his “baseline outlook is very solid.”2
  • Both statements are in line with the Fed’s September Summary of Economic Projections, which forecasts another rate hike in 2018 and more than two in 2019, which would take the Fed funds rate to 3.1% by year-end.3
  • However, investors see a significantly less active Fed in the next 12 months. As the chart shows, investor expectations for the target Fed funds rate as of December 2019 have been lower than the Fed’s forecasts throughout 2018.4 Over the past month, markets have trended lower, from approximately 2.9% to 2.6%, implying a rate hike in December and just one more next year.4
  • Regardless of the Fed funds rate’s actual path next year, it appears likely that, based on both market and Fed expectations, longer-term rates could also remain anchored close to their current levels. As a result, 2019 could be another year in which income-seeking investors remain challenged.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Search our site