NEW YORK – Nov. 15, 2018 – The Federal Reserve is forecasting U.S. interest rate increases well into 2020, but the financial markets believe policymakers could rethink their tightening policy as soon as early next year.

Observers point to a slowdown in economic growth from this year’s stimulus-boosted pace. TS Lombard’s Steven Blitz believes that a December rate hike will most likely occur, but he sees 2019 as more questionable.

“If employment growth starts to slow towards a neutral pace early next year and the unemployment rate creeps up as a result, does the Fed keep going just because wages are accelerating? We doubt it,” he says. “The noted slowdown in business spending will only be further negatively impacted by the strong dollar and higher real rates.”

TS Lombard’s prediction: The Fed will suspend its rate-hike campaign in March 2019.

The Fed sees interest-rate increases as a tool to fight inflation, but the latest report for October found little evidence of inflation despite strength in the economy and wages.

The consumer-price index (CPI) increased 0.3 percent in October from the prior month, the Labor Department said Wednesday; year-to-year, overall consumer prices climbed 2.5 percent in October, compared with 2.3 percent in the 12 months that ended in September.

Excluding the volatile categories of food and energy, the core CPI rose 0.2 percent last month, largely in line with recent trends, and 2.1 percent from a year earlier.

“These are pretty steady inflation prints,” with “nothing in here that argues inflation is going to overshoot,” says Omair Sharif, senior U.S. economist at Societe Generale. Also, there’s little to concern policy makers, so they’ll “continue to stay gradual” with interest-rate hikes, he said.

Source: Forbes (11/13/18) da Costa, Pedro Nicolaci; Bloomberg (11/14/18) Chandra, Sho

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