Analysts at Danske Bank expect the Fed to raise the target range by 25bp to 2.00-2.25% at today’s meeting and do not expect it to be necessary for the Fed to send any new important signals to the markets.
Key Quotes
“We believe the most important parts of the statement will remain unchanged and even if the sentence ‘monetary policy is accommodative’ is removed or changed, it should not matter much, in our view, as it would just reflect reality.”
“With respect to the dots, the Fed will most likely still signal another hike in December (and probably that more FOMC members support this) and three hikes next year (it was divided between two or three additional hikes next year and it would take four members to move it higher). The Fed will also still signal that it is going to raise the Fed funds rate above the longer-run dot. The longer-run dot may be revised higher to 3.00%.”
“Even the more dovish members, have signalled in speeches that the Fed is on autopilot until neutral is reached. That means that the hikes in December and in March seem very likely. Another hike during the summer next year, perhaps June, is also likely.”
“The real economy is in good shape and is stronger than when the Fed started its tightening cycle: Growth is strong, employment continues to rise, wage growth is increasing, PCE core inflation is 2% and optimism is high.”
“After the Fed funds rate reaches neutral, it is more ‘stop and go’ depending on how the economy is doing and how markets are reacting to monetary tightening.”
“We believe the Fed will be able to continue hiking with one hike in H2 19 (i.e. three hikes next year and a total of five hikes from now until year-end 2019). Markets are pricing in 3.75 hikes from now until year-end 2019 (i.e. including the hike this week).”
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