Analysts at Nomura explained that they think it is highly likely that the FOMC will raise rates at the June meeting; at this point, it would be extremely surprising were the Committee to forgo a rate hike.
Key Quotes:
“More important, with respect to the “dot plot,” given that economic momentum has accelerated since March, we expect the Committee’s new rates forecast to reflect a total of four rate hikes in 2018, up from three previously.”
“There is also some risk that the longer run median “dot” moves up given the distribution of participants’ forecasts. We continue to expect a total of four rate hikes from the FOMC in 2018 with hikes in September and December after the expected rate increase at the June meeting.”
“While a rate hike appears likely, we expect the mechanics of the policy change to be somewhat different in June. Consistent with the May FOMC minutes, we believe the Committee will raise the target range for the federal funds rate by 25bp, to 1.75-2.00%, but will increase the interest rate on excess reserves (IOER) by only 20bp, 5bp lower than the top of the target range. This would largely be a mechanical change reflecting the narrowing EFFR-IOER spread but may represent a small step towards moving back to a point-estimate, as opposed to range, policy rate framework.”
“For the statement, we expect revisions to the forward guidance language. Finally, we expect Chair Powell’s post-meeting press conference remarks, in addition to explaining the IOER adjustment and forward guidance language changes, to largely adhere to points made by Governor Brainard in her speech on 31 May.”
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