Halister News

(Bloomberg) -- Fed Chair Yellen is likely to reaffirm FOMC expects it’ll be appropriate to raise rate this yr, though will “stay away from any timeline,” BofAML economist Michael Hanson writes in note.

• Anticipate “relatively few changes” to June statement given that it’s a “‘wait and see’ meeting”; don’t expect any “explicit signals” about subsequent mtgs
  • FOMC may acknowledge labor mkt has softened, though could offset it by suggesting U.S. has reached full employment
  • Don’t expect Fed to provide “balance of risks assessment,” though may keep language about closely monitoring inflation indicators, and global and economic financial developments
  • Fed should continue to “advocate a patient, gradual and data-dependent approach” to normalizing
• “Relatively low probability” that median number of hikes for 2017, 2018 will decline to 3 from 4
  • Changes to 2017 would require all 5 Fed officials currently signaling 4 hikes to switch to 3
• Productivity outlook may be actively debated; if FOMC builds a lower productivity assumption into forecast, then it’ll “likely trim” the longer-run funds rate target and GDP growth rate
• Hurdle for July rate hike is “relatively high”
  • BofAML’s base case remains for Sept. rate hike
• NOTE: Fed fund futures fully pricing next rate hike around May/June 2017; May17 implied rate 61bps, Jun17 63bps, near midpoint of 50-75bp target range
  • Probability of June rate hike 0%, July 20%, Sept. 36%