U.S., December 21, 2016 (Bloomberg): There was something odd in the projections that Federal Reserve officials issued last week.
Enough policy makers bumped up the number of interest-rate hikes they expected in 2017 to lift the median to three from two — displayed graphically in the Fed’s so-called “dot-plot.” The Dec. 14 surprise, accompanying the Fed’s decision to raise rates for the first time in a year, pushed stocks off their record highs and lifted bond yields and the dollar.

But the accompanying economic forecasts barely budged. Compared to their September outlook, the median estimate for growth next year edged up by just one-tenth of a percentage point to 2.1 percent, the expected unemployment rate at the end of 2017 dropped a tenth to 4.5 percent and the inflation call remained unchanged at 1.9 percent.

The dissonance contained in the Fed’s quarterly Summary of Economic Projections has caused some economists to scratch their heads over what’s behind it, and over what’s the truer signal of Fed intentions: the more hawkish message from rate projections, hinting at a greater readiness among policy makers to tighten policy in response to even modest economic progress, or the steady-as-we-go forecasts that line up with past patience toward adjusting rates.

John Bellows, a portfolio manager at Western Asset Management Co. in Pasadena, California, said the difference may result, in part, from the prospect for expansionary fiscal policies under the incoming administration of President-elect Donald Trump. That, he said, may have worked its way into Fed officials’ rate outlooks without yet causing them to rework their economic forecasts.