Analysts at TD Securities expect the US Federal Reserve (Fed) to hike the interest rate it pays on excess reserves (IOER) by 5 basis points to 1.6%.
Key quotes
We expect a 5bp rise in the IOER rate to 1.60%, with the change downplayed as just a technical adjustment.
The Fed funds rate will almost certainly be left unchanged today. Tweaks to the FOMC statement are likely to be minor, with the policy still described as “appropriate” but with officials also still in “monitor[ing]” mode, consistent with an easing bias.
With the Fed expected to maintain the status quo, the USD still remains the best of a bad lot, particularly as FX is preoccupied with virus contagion fears.
Excess reserves are capital reserves held by a bank in excess of what is required by the Fed. Since 2008, the Fed has been paying banks an interest rate on these excess reserves.
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