Fed's View on Inflation Key at Yellen's Last Meeting

Jim Sinegal: The Fed meeting this week has been widely anticipated, and it's widely expected that the Fed will move short-term interest rates up by 25 basis points.

We're not expecting a lot of surprises. What we are interested to see is what the Fed has to say about inflation. Inflation still remains below the long-term 2% target, yet the Federal Reserve seems intent on raising rates. They are expecting inflation to rise going forward; they'd like to have some dry powder in the event of another economic downturn. But what we're seeing from the market is some are concerned that the Fed may be raising rates too fast. The Fed has outlined a fairly aggressive path for further increases in 2018, but futures data show that the market is only expecting one more rate increase. We think that's because inflation has been lower than the target, and wage growth has also been relatively slow.

It's also Janet Yellen's last meeting as Federal Reserve chairwoman. We'll see a new chair in the new year. We don't expect policy to change much; we expect the Federal Reserve will remain very data-driven.

I think the key factors in 2018 are whether or not the Trump tax cuts actually lead to a boost in business investment and a boost in hiring. If that happens we should see wage growth, we should see inflation move back toward 2%, but it's still a very big question at this point.