2018 Introduces Increased Interest Rates
January 1, 2018 | Phil Aitken

According to Forbes Magazine, we can expect 2018 to introduce a quarter point interest rate hike.  Of course one has to wonder if further interest spikes should be expected in the new year and how such rates could affect investors.  

While certain committee members expect at least three rate spikes in 2018, almost all members are predicting further increases for 2019.  This means that the current state of the U.S. economy is good and upward pressure on interest rates will more than likely continue.    

Tax reform really puts a spin on things as the passage of the new tax reform bill will result in fiscal stimulus and a booming economy.  This particular boost will plateau in 2019 as such projections are revised up from two percent to 2.1 percent in 2019 and from 1.8 percent to two percent in 2020.   The benefit from the tax bill will be short-lived as 2018 growth will not surpass that of 2017.  

In short, the current lethargic growth path will carry on and rates will continue to rise.  The tax bill will only extend fast growth for a few quarters at most.

What about inflation?  

Historically, there has been concern that inflation was too low, therefore rates remained low with the expectation that inflation would rise.  While there has been a minimal upward revision (1.6 percent to 1.7 percent) to 2017 rates, numbers for 2018 and 2019 remain unchanged.  Regardless of such concerns, rate increases over the upcoming years will not be prevented.  High expectations equal a low bar for further increases.  There has been the lingering question of whether economic risks were higher in raising rates versus keeping them low, however such projections encourage a hike in rates at current growth and inflation rates.   Economic risks are minimal at this point.  

There will be a new Fed chair this year.  Republican Jay Powell will be assuming the role and is considered to be rather "hawkish" so new nominees might so as well.  

The bottom line: expect slow, steady rate increases throughout 2018 beyond what the market might expect.  


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