Markets & Economy

Interest rates went up — so what’s next?

There will be 3 more rate hikes in 2016, and the Fed funds rate will be about 1.25 percent at the end of next year
  • The Fed funds rate will be about 1.25 percent at the end of next year, with three hikes in 2016.
  • Then, perhaps, 2.25 percent at the end of 2017.
  • By the end of 2018, the rate should normalize somewhere just above 3.00 percent.
  • Only 18 months ago, the dots had "normal" at 4.00 percent or higher.

We are so impatient. The first intrest rate hike in almost 10 years is now hours old, and we want to know what’s next. The first part of the answer is easy. Unlike candidates for President, or any political office, or relatives, co-workers, or salespeople, the Federal Reserve intends to do what it says it will do. It may have to change its mind, but its intentions are clear. Every 90 days, the Fed publishes a scattergram showing where it expects to take the Fed funds rate at the end of each year in the future -- today's newest is below. “The Fed” is the Chair, five governors nominated by the President and confirmed by Congress, and the 12 presidents of the Fed’s regional banks. There's one dot in the scattergram for each of those officials; the dots are anonymous. The Chair and the governors really run the show, those six voting at every meeting -- only five of the regionals allowed at any one time, rotating. Important: the regional presidents are more co...