HALISTER1: FOMC 2017-18 ‘Dots’ Likely to Come Down at June Meeting, MS Says

FOMC 2017-18 ‘Dots’ Likely to Come Down at June Meeting, MS Says

(Bloomberg) -- FOMC participants may make “sweeping changes” to forecasts of growth and longer-run nominal equilibrium rate while lowering “dot” projections for 2017-2018, given “sluggish growth, little sign of a pickup in productivity” and mild wage gains, Morgan Stanley strategists led by Ellen Zentner write in note.
  • A markdown is “long overdue” to median longer-run growth projection, which has been stable at 2%
    • Will only take downward revisions from 3 policy makers to shift median to 1.9% from 2%
  • Policy makers’ assessment of longer-run neutral rate has been on a downtrend; will only take downward revisions from 4 policy markers to shift median to 3% from 3.25% at June meeting
  • Median expectation for 2016 will remain “hard-centered” around 2 hikes
    • Even so, it’s likely Fed will only raise rates in Dec., given persistent headwinds to growth, core inflation and “lingering uncertainty over the global backdrop”
  • Median dot will come down to 1.625% in 2017 (3 hikes) from 1.875%, 2.375% in 2018 (3 hikes) from 3%
  • Focus on decline in intended pace of hikes in 2017, 2018 will be enough to support belly of yield curve relative to the wings
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Ellen Zentner (Morgan Stanley)

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