Last thoughts ahead of expected Fed lift-off

It is widely expected that, after a seven-year period at near-zero, the US Fed will raise interest rates. Economists anticipate a 25bp increase in the target range for the fed funds rate. Admittedly, Chicago Fed President Charles Evans repeated recently that he favours a later lift-off. And, in recent months, Fed Governors Lael Brainard and Daniel Tarullo have also called for a delay until 2016. But policy decisions at turning points in the cycle are rarely unanimous, so it is not wise to read too much into that, even if all three voted to leave rates at near-zero.

"We wouldn't be surprised if Fed officials tried to offset any potentially adverse reaction in the markets by putting an even more dovish spin on the prospects for additional rate hikes. The statement already notes that rates will remain well below the long-run neutral rate, which the Fed currently estimates to be 3.5%, even when both parts of the Fed's dual mandate have been fulfilled. We also wouldn't be surprised to see Fed officials lower their projections for interest rates at the end of 2016 and 2017, probably in response to a further downgrade to the inflation forecasts", says Capital Economics in a research note.

 Finally, officials could push their estimates of the long-run neutral rate even lower or add that, in the short-term the real neutral rate is probably nearer zero.