HALISTER1: FOMC Will ‘Shallow Out Path for Rates’: Morgan Stanley

FOMC Will ‘Shallow Out Path for Rates’: Morgan Stanley

(Bloomberg) -- FOMC dot plot to be released next week is likely to “shift lower and outward,” with medians falling to 1 hike this year, 2 in 2017, 3 in 2018 and 4 in 2019, ending at 2.875%, Morgan Stanley economists led by Ellen Zentner say in note.
  • This “should continue to support the belly of the yield curve,” and market-implied probability of a Dec. hike should fall below 50%, favoring UST 5Y
  • Morgan Stanley also expects:
    • “Benign” FOMC statement that removes “the now dated Brexit-specific reference that ‘near-term risks’ have diminished and reiterate it continues to ‘closely monitor’ inflation and global developments”
    • Reduction to 1.8% from 2% in economy’s long-run potential growth rate
    • “Minor adjustment” to NAIRU, to 4.7% from 4.8%
    • Yellen in Q&A “to tie the lower path for policy to persistent headwinds,” while “relaying an optimistic view that further rate hikes could be warranted” by progress toward mandates
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Ellen Zentner (Morgan Stanley)

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