HALISTER1: Fed Likely to Hold Off Raising Rates Until September: MS

Fed Likely to Hold Off Raising Rates Until September: MS

(Bloomberg) -- Odds of March rate increase are likely low as Fed looks for inflation pressures to build and fiscal policy to take hold before acting again, Morgan Stanley economist Ellen Zentner, strategist Matthew Hornbach, and others write Thursday.
  • “We expect the Fed’s engine to idle until September”; there isn’t much for Fed to do at Jan. 31-Feb. 1 meeting
    • NOTE: In Jan. 6 note, MS hadn’t ruled out a move in March
  • Policy makers will deliver “positive-sounding” and “benign” statement keeping fed funds rate unchanged at 0.5%-0.75% and risks to outlook as “roughly balanced”
  • Officials remain upbeat on outlook and this tone may be reflected in Feb. 1 statement, which could lead market probabilities for a March hike to rise
    • New data and risks of more upbeat FOMC statement should guide market-implied probabilities for action in March toward 50%; this should pressure short- and intermediate-maturity yields higher and lead to steeper 2s5s and 2s10s curves
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Ellen Zentner (Morgan Stanley)
Matthew Hornbach (Morgan Stanley)

To de-activate this alert, click here

UUID: 7947283