HALISTER1: RESEARCH ROUNDUP: Fed to Sound More Upbeat on Data at July Mtg

RESEARCH ROUNDUP: Fed to Sound More Upbeat on Data at July Mtg

(Bloomberg) -- (Adds Bloomberg Intelligence, updates Citi in roundup that was first published on July 21.)
  • Fed policy makers aren’t likely to hint at timing of next rate increase after two-day mtg that concludes Wed., though improved economic data suggests central bank could still hike at least once this yr, based on published research by economists and strategists.
  • Commentary below about FOMC’s next mtg and U.S. monetary policy outlook; Sept. or Dec. seen as possible for next rate increase
  • Fed funds futures fully pricing next rate hike around 2H 2017; Sept17 implied rate 63bps, above midpoint of 50-75bp target range
  • Barclays (Michael Gapen)
    • Fed officials will wait until after Aug. 5 release of July jobs report before using public remarks to signal gradual hikes
    • Story link
    • Don’t expect signal about next hike to come at Fed’s July 26-27 mtg; Yellen’s appearance at Jackson Hole in late Aug. is “more likely time for a shift in tone”; more
  • Bloomberg Intelligence (Carl Riccadonna, Yelena Shulyatyeva)
    • July meeting is likely to pass with “little fanfare”; no change in fed funds rate expected; economic assessment will get only minimal modifications
    • Era of “do-nothing meetings” will be ending soon; economy is strengthening; expect many more “live meetings” in 2017
    • Story link
  • BNP (Sam Lynton-Brown)
    • July is “too early” for very hawkish signal; Fed won’t send strong signal about Sept.
    • Statement will likely present “marginally more upbeat assessment”
    • Story link
  • BofAML (Michael Hanson)
    • FOMC to leave door open to Sept., without giving “clear signals”
    • Statement is likely to note better data, say officials are still monitoring inflation/global risks, leave policy unchanged
    • Singling out next mtg would be “hawkish surprise” to mkts
    • Story link
  • Capital Economics (Paul Ashworth)
    • Fed rate hike in Sept. is “still a distinct possibility”
    • FOMC is unlikely to “spring any surprises” at July mtg or commit itself to a Sept. move
    • Statement should acknowledge pick-up in 2Q GDP growth, recent strength in consumption, rebound in employment growth in June
    • Story link
  • Citi (William Lee)
    • Fed statement to stick with call for “watchful waiting,” reflect improved labor mkts
    • Pace of activity is still too low to persuade Yellen and doves that they should resume rate increases soon
    • Story link
    • Fed to “scrupulously” avoid raising Sept. probabilities, strategist Steve Englander writes in a separate note
    • “We see more risk that they make a G-20-like downbeat reference to global growth and cite Brexit uncertainty”
    • Story link
  • Deutsche Asset Management (Joshua Feinman)
    • Fed most likely to move rates in Dec., tread carefully
    • For Fed to hike again, there would need to be signs that global/financial mkt risks post-Brexit “are remaining in abeyance,” labor mkt is healing, inflation is stabilizing or heading higher
    • “Picture will come into focus” enough for Fed to act before end of yr
    • Story link
  • HSBC (Kevin Logan, Ryan Wang)
    • Fresh forward-looking signals won’t be in July 27 statement; Yellen could give clearer policy signs at Jackson Hole in Aug.
    • U.S./global uncertainties to keep FOMC on hold in July and for rest of 2016; Fed to make just one 25bp move in 2017
    • While Fed continues to closely monitor low inflation and global economic/financial mkt developments, it’s unlikely to change policy
  • JPMorgan (Michael Feroli)
    • Fed to repeat forward guidance that future rate moves will be data dependent, with continued emphasis on inflation developments
    • This would send message that FOMC is in “no great rush” to raise rates, consistent with JPM’s view that Dec. is most likely time for next hike
    • Story link
  • Mizuho (Steven Ricchiuto)
    • Mkts much too complacent in assessment of what FOMC likely to do and in thinking policy makers are comfortable with rates staying in 25-50bps range for foreseeable future; that’s inconsistent w/ policy framework built on Taylor rule
    • FOMC probably still looking to raise rates and now that markets are firming, risk is higher that Fed will revert to tightening stance
    • 2Y is expensive, 10Y note may be cheap, equities are once again vulnerable and spreads are too tight
  • Morgan Stanley (Ellen Zentner, Matthew Hornbach, others)
    • Statement to reflect lack of consensus at Fed, as policy makers drift apart after Brexit and given uncertainty about U.S. growth/inflation outlook
    • Fed should say that “appropriate policy accommodation” will support economic activity, drop reference to “gradual adjustments”
    • Story link
  • RBC (strategists)
    • Fed won’t raise until at least June 2017, will be “a bit more aggressive” in assessment of global risks
    • Story link
  • Renaissance Macro (Neil Dutta)
    • Opening paragraph of FOMC statement will be “more upbeat,” reflect improved tone from data; otherwise, limited changes to statement seen, with FOMC reaffirming that outlook warrants gradual increases in fed funds rate
    • While Fed isn’t likely to bring back risk assessment, Fed could soften language on monitoring inflation indicators and global economic/financial developments
    • Policy makers won’t provide any signals for rate hike at next mtg, yet will not shut door on Sept. either
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Ellen Zentner (Morgan Stanley)
Joshua Feinman (Deutsche Bank AG)
Kevin Logan (HSBC Securities USA Inc)
Matthew Hornbach (Morgan Stanley)
Michael Feroli (Bear Stearns & Co Inc)

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