“With the hike of the target range for the federal funds rate to 1.75-2.00% on June 13 already discounted by the markets, most of the market’s attention will be on any changes in the formal statement and the projections, and of course Powell’s post-meeting press conference,” Rabobank analysts argue in their latest report title ‘FOMC Preview: Old puzzles, new dilemmas.’
Key quotes
“The key question for the markets is whether the dot plot still implies 3 hikes for this year or an upward shift to 4 hikes. Our current Fed call is three hikes this year (March, June, September) and an upward shift in the dot plot next week would in itself not change our call. As long as the Phillips curve refuses to materialize, we continue to have our doubts about the Fed’s hiking plans.”
“Changes in the FOMC statement could reflect the Committee’s assessment of the economy and inflation and the Fed’s new dilemmas now that the policy rate is rapidly approaching restrictive territory. It might be soon appropriate to revise the forward guidance about the fed funds rate remaining, for some time, below levels that are expected to prevail in the longer run or to modify the language about the accommodative nature of the stance of monetary policy.”
“The intended June hike of 25 bps may be accompanied by a 20 bps increase in the IOER because of technical reasons. However, this likely means that the effective fed funds rate will rise by 20 bps as well, instead of 25 bps. So June’s hike could be a ‘hike light’.”
Share
