Economic Stability, Health and Society
Amir Bagherpour | Feb 2016

Interest Rates

Updated: Dec 14
  • UPDATED: Dec 14

    Fed Finally Raises Interest Rates

     

     

  • UPDATED: Aug 10

    54% Chance of One Interest Rate Hike in 2016

  • PUBLISHED: Feb 18

    Interest Rates

    How Many Times Will the Fed Raise Interest Rates in 2016?

    Few decisions have as much impact on the US and global economy as the Federal Reserve’s action on interest rates. giStrat, in partnership with Acertas, applied agent-based modeling and Monte Carlo analysis to estimate the number of times the Federal Open Market Committee (FOMC) will raise interest rates in 2016.

    In addition to capturing FOMC dispositions on interest rate hikes, giStrat and Acertas captured the effect of external pressures from the European Union, China, American consumers and U.S. exporters on Committee member decisions.

    Our analysis shows the Fed will likely enact 3 interest rate hikes in 2016.

    Download the full report here.

Fed Finally Raises Interest Rates

The Federal Reserve has raised interests rates for the first time in 2016 and only the second time in a decade. The Federal Open Market Committee has increased the rate by 25 basis points to between .50% and .75% . In August of 2016, giStrat estimated a 54% chance of 1 interest rate hike in 2016 and a 40% chance of no rate hikes after the Fed significantly adjusted it’s path following the UK decision to leave the EU. Below is a depiction of our simulations indicating a likely interest rate hike before the end of the year.

Median Position Simulated Across 40 Alternative Futures

Simulation Date: August 10th 2016

Uniform Distribution: 100% shock, +-40% variance across 40 alternative futures. Results: 16/40 (40%) at 0 hike, 22/40 (54%) at 1 hike, 2/40 (5%) at 2 hikes, 5/40 (15%) at 1 hike, 7/40 (18%) at 0

Uniform Distribution: 100% shock, +-40% variance across 40 alternative futures.
Results: 16/40 (40%) at 0 hike, 22/40 (54%) at 1 hike, 2/40 (5%) at 2 hikes, 5/40 (15%) at 1 hike, 7/40 (18%) at 0

Share this update

A Look at How Many Times Interest Rates Will Rise in 2016

Few decisions have as much impact on the US and global economy as the Federal Reserve’s action on interest rates. giStrat, in partnership with Acertas, applied agent-based modeling and Monte Carlo analysis to estimate the number of times the Federal Open Market Committee (FOMC) will raise interest rates in 2016.

In addition to capturing FOMC dispositions on interest rate hikes, giStrat and Acertas captured the effect of external pressures from the European Union, China, American consumers and U.S. exporters on Committee member decisions.

Our analysis shows the Fed will likely enact a minimum of one interest rate hike in 2016.

Analysis

China has experienced an economic slowdown partially due to admissions of false economic reporting. It will actively oppose the FOMC position on raising interest rates based on fears that any potential slowdown in the United States might negatively affect China’s economy.

The EU holds a similar position to China. As it has not yet recovered from the deep recession, the EU perceives an interest rate hike as too risky given current sensitive economic and political conditions.

American consumers will not likely seek higher interest rates either given the adverse effect it could have on their debt and financing prospects. U.S. exporters will almost certainly oppose an interest rate hike, as it would strengthen the dollar, resulting in a decrease in American exports.

Conclusion

Despite significant external pressure to halt the Federal Reserve’s course on interest rate hikes in 2016, simulations and statistical testing on FOMC voting indicate the Committee will continue to pursue rate hikes. Our analysis indicates that the majority of FOMC members will favor a minimum of one interest rate hike in 2016.

Methodology

About the Forecasting Platform

This forecast is conducted using a validated agent-based game theory model called Senturion. It incorporates computational analytics applying proven theories of behavior from the fields of psychology, political science and microeconomics to anticipate political outcomes. The U.S. State Department selected Senturion in 2014 as the most accurate model for predicting conflict and crisis outcomes at an estimated 90% accuracy level across 200+ cases. The model first generates a picture of the current political landscape on a given issue (eg. pro/anti, liberal/conservative) and then animates the picture into a dynamic simulation of how political interests will likely evolve.  

The approach anticipates political outcomes, details how individuals and groups evolve and adapt, sheds light on complex political interrelationships, and allows for policy design and development across multiple scenarios. In addition to agent-based modeling, the model allows for probabilistic modeling using robustness testing and Monte Carlo simulations to account for error and uncertainty.

Model Assumptions

The model assumes that each stakeholder or group is seeking to maximize their position relative to the influence and importance they place on the issue. The model also assumes each stakeholder is self-interested with an existing ideal preference regarding the issues (single peaked preference).

Contributors

Global Impact Strategies

Amir Bagherpour, PhD, Chief Political Scientist
Shaun Donaldson, Senior Analyst

Acertas

Mark Abdollahian, PhD, CEO
Jacek Kugler, PhD, Senior Strategist
Patrick Neal, Director of Engagements

 

Share this project
Top