Halister News

(Bloomberg) -- The Fed’s Summary of Economic Projections and the tone of its statement and press conference at next week’s meeting may draw more attention than any announcement about the balance sheet, which has been “well communicated in advance,” BofAML strategists led by Michelle Meyer say in note.

• Rates market expects meeting to be non-event; participants anticipate Fed to announce the portfolio unwind process to begin in October, with no change in fed funds rate; any shift lower in 2019 or longer-run dots would be supportive of a steeper curve, given the potential “for a more patient Fed to allow for a shift upwards in inflation”
• Not the meeting “to clarify the path for the USD in the months ahead”; “the real question is when the Fed will hike again and whether it will continue hiking in the next two years”
• BofA expects statement to imply FOMC is “more upbeat” about risks to inflation and growth, with the median for inflation shifting lower this year and next
• Dots unlikely to move, maintaining expectations for three hikes this year; however, it’s possible the trajectory for future rate increases moves lower, since the Fed will be introducing 2020 dots; 2019 expectation “most vulnerable,” as only one Fed official would have to shift to the “two-hike camp” to move the median
• Chair Yellen should “strike a balanced tone” at press conference; questions may focus on changes to balance-sheet policy and inflation risks
• Expect NY Fed’s Open Market Desk to release statement indicating how Fed will handle reinvestments, with a proportional reduction in total UST holdings across mid- and month-end issues
• Fed communications will likely leave room for an additional rate hike this year

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Greg Chang