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Bill Diviney, senior economist at ABN AMRO, suggests that they are expecting the FOMC to keep interest rates on hold this Wednesday, and to announce an end to the balance sheet runoff in September, though there is a risk the announcement could slip to a subsequent meeting.

Key Quotes

“We expect Chair Powell to strike a somewhat dovish tone in his press conference, noting the continued global economic uncertainty given the lack of a stabilisation in the global industrial sector. However, we also expect him to acknowledge the substantial improvement in domestic financial conditions since late last year, and signs of resilience in domestic demand, such as the rebound in consumer confidence.”

“At the same time, while we expect a shift lower in the dots rate hike projections to show just one rate hike in 2019, this might disappoint financial markets, which now price in around 6bp of rate cuts by year end. We continue to think the Fed is done with rate hikes, but that it will maintain a modest tightening bias in its rate hike projections for as long as the economic outlook remains broadly positive.”

“In a well-telegraphed move, the Fed is likely to announce an end to its ‘quantitative tightening’ balance sheet unwind, likely in September. Officials have already signalled that the runoff will be done by year-end, and we think it could come even sooner.”