Halister News

(Bloomberg) -- Fed’s “lack of consensus” likely to be reflected in July 27 statement as policy makers have drifted apart after Brexit, given uncertainties about U.S. growth and inflation outlook, Morgan Stanley economist Ellen Zentner, strategist Matthew Hornbach and others write in note.

• Statement should say that “appropriate policy accommodation” will support economic activity, rather than “gradual adjustments”
• Much easier for policy makers “to come to a consensus that uncertainty surrounding the outlook has risen”
• Fed will “ambiguously” point to expectation that FOMC will maintain appropriate level of accommodation, keep fed funds rate target unchanged at 0.25%-0.50%
• Statement should describe backdrop of moderate growth, further job gains, solid consumer spending, continued housing recovery and signs of weak business investment, low readings of inflation compensation
• MS sees Fed on hold through end of 2017
• Mkts are likely to maintain probability of Dec. rate hike near 50%
  • Given likely “muted reaction,” investors should remain neutral on duration and curve shape in U.S. rates mkt ahead of mtg
• Repricing in rates mkt since Brexit has been predicated on much more dovish Fed outlook, with policy makers staying on sidelines