RESEARCH ROUNDUP: Fed Unlikely to Signal Much at July 26-27 Mtg
(Bloomberg) -- (Adds HSBC, JPM, Renaissance Macro to item that moved on July 21.)
- Fed policy makers aren’t likely to hint at timing of next rate increase at July 26-27 mtg in Washington, though improved economic data suggests central bank could still hike at least once this yr, based on published research by economists and strategists.
- Commentary below about FOMC’s next mtg and U.S. monetary policy outlook; Sept. or Dec. seen as possible for next rate increase
- Fed funds futures fully pricing next rate hike around Oct. 2017; Oct17 implied rate 64bps, above midpoint of 50-75bp target range
- Barclays (Michael Gapen)
- Fed officials will wait until after Aug. 5 release of July jobs report before using public remarks to signal gradual hikes
- Story link
- Don’t expect signal about next hike to come at Fed’s July 26-27 mtg; Yellen’s appearance at Jackson Hole in late Aug. is “more likely time for a shift in tone”; more
- BNP (Sam Lynton-Brown)
- July is “too early” for very hawkish signal; Fed won’t send strong signal about Sept.
- Statement will likely present “marginally more upbeat assessment”
- Story link
- BofAML (Michael Hanson)
- FOMC to leave door open to Sept., without giving “clear signals”
- Statement is likely to note better data, say officials are still monitoring inflation/global risks, leave policy unchanged
- Singling out next mtg would be “hawkish surprise” to mkts
- Story link
- Capital Economics (Paul Ashworth)
- Fed rate hike in Sept. is “still a distinct possibility”
- FOMC is unlikely to “spring any surprises” at July mtg or commit itself to a Sept. move
- Statement should acknowledge pick-up in 2Q GDP growth, recent strength in consumption, rebound in employment growth in June
- Story link
- Citi (William Lee)
- Fed statement to stick with call for “watchful waiting,” reflect improved labor mkts
- Pace of activity is still too low to persuade Yellen and doves that they should resume rate increases soon
- Story link
- It’s possible the Fed will consider a Sept. hike if payroll reports and retail sales are strong, but “everything has to break right,” especially in a pre- election environment, Citigroup strategist Steven Englander writes in a separate note
- Story link
- Deutsche Asset Management (Joshua Feinman)
- Fed most likely to move rates in Dec., tread carefully
- For Fed to hike again, there would need to be signs that global/financial mkt risks post-Brexit “are remaining in abeyance,” labor mkt is healing, inflation is stabilizing or heading higher
- “Picture will come into focus” enough for Fed to act before end of yr
- Story link
- HSBC (Kevin Logan, Ryan Wang)
- Fresh forward-looking signals won’t be in July 27 statement; Yellen could give clearer policy signs at Jackson Hole in Aug.
- U.S./global uncertainties to keep FOMC on hold in July and for rest of 2016; Fed to make just one 25bp move in 2017
- While Fed continues to closely monitor low inflation and global economic/financial mkt developments, it’s unlikely to change policy
- JPMorgan (Michael Feroli)
- Fed to repeat forward guidance that future rate moves will be data dependent, with continued emphasis on inflation developments
- This would send message that FOMC is in “no great rush” to raise rates, consistent with JPM’s view that Dec. is most likely time for next hike
- Story link
- Mizuho (Steven Ricchiuto)
- Mkts much too complacent in assessment of what FOMC likely to do and in thinking policy makers are comfortable with rates staying in 25-50bps range for foreseeable future; that’s inconsistent w/ policy framework built on Taylor rule
- FOMC probably still looking to raise rates and now that markets are firming, risk that Fed will revert to tightening stance is higher
- 2Y is expensive, 10Y note may be cheap, equities are once again vulnerable and spreads are too tight
- Morgan Stanley (Ellen Zentner, Matthew Hornbach, others)
- Statement to reflect lack of consensus at Fed, as policy makers drift apart after Brexit and given uncertainty about U.S. growth/inflation outlook
- Fed should say that “appropriate policy accommodation” will support economic activity, drop reference to “gradual adjustments”
- Story link
- RBC (strategists)
- Fed won’t raise until at least next June, will be “a bit more aggressive” in assessment of global risks
- Story link
- Renaissance Macro (Neil Dutta)
- Opening paragraph of FOMC statement will be “more upbeat,” reflect improved tone from data; otherwise, limited changes to statement seen, with FOMC reaffirming that outlook warrants gradual increases in fed funds rate
- While Fed isn’t likely to bring back risk assessment, Fed could soften language on monitoring inflation indicators and global economic/financial developments
- Policy makers won’t provide any signals for rate hike at next mtg, yet will not shut door on Sept. either
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Ellen Zentner (Morgan Stanley)
Joshua Feinman (Deutsche Bank AG)
Kevin Logan (HSBC Securities USA Inc)
Matthew Hornbach (Morgan Stanley)
Michael Feroli (Bear Stearns & Co Inc)
To de-activate this alert, click
hereUUID: 7947283