Fed set to hike interest rates tomorrow, CNN thinks Trump wants even faster interest rate increases…

From CNN money

The Federal Reserve is widely expected to raise interest rates after its meeting wraps up Wednesday. And investors will be paying particularly close attention to the Fed’s so-called dot plot, which shows where Fed officials think rates will be over the next few years.

Given that Trump bashed Yellen on the campaign trail for keeping rates too low, many think Trump will name new Fed members that are considered hawkish as opposed to dovish: i.e. more inclined to raise rates than keep them near historically low levels.

So even though most investors now expect the Fed to raise several times this year and a couple of more times in 2018, the market may look at Wednesday’s dot plot and mentally nudge some of those 2018 dots even higher.

“I think we will get replacements for Yellen and Fischer,” said Matt Toms, chief investment officer of Fixed Income at Voya Investment Management.

Toms thinks that the Fed will raise rates three times this year and could do so another three times in 2018.

The Fed could wind up being even more aggressive if Trump is able to quickly make over the central bank’s board of governors though. There are five Fed members on this board, as well as 12 regional Fed presidents.

All 17 provide interest rate targets for the dot plot but not all of them have a vote on monetary policy decisions. The five governors do while the regional bank presidents have a rotating schedule for serving on the Fed’s Open Market Committee that sets rates.

“There is a decent probability that the composition of the Fed next year is more hawkish than it is now,” said Lisa Hornby, a fixed income manager at Schroders, noting that 5 of the dots from permanent voting members are up for grabs.

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