Fed in wait-and-see mode until details of fiscal stimulus emerge

Following its rate hike at last December’s meeting, the Fed will remain in wait-and-see mode until it has more clarity on the magnitude, composition and timing of the anticipated fiscal stimulus. We expect no change at next week’s FOMC meeting, which concludes on Wednesday. Indeed, we suspect that the Fed will be on hold until June. Assuming that Congress passes a major package of tax cuts by mid-year, however, we then anticipate a further 75 basis points of monetary tightening in the second half of this year, taking the fed funds rate to between 1.50% and 1.75% by year-end.