HALISTER1: RESEARCH ROUNDUP: Greater Chance That FOMC Dots Will Move Higher

RESEARCH ROUNDUP: Greater Chance That FOMC Dots Will Move Higher

(Bloomberg) -- (Adds Market Securities, RSM, TD, UBS to item that moved on March 13.)
  • Market participants say there’s now a greater chance that the FOMC will raise median forecasts for fed funds rate at two-day meeting that ends Wednesday, based on recent published research and interviews; there’s risk that the number of expected moves for this year or in 2018 rises to four from three.
  • Dots will likely overshadow a rate hike, which is seen as a given by most commentators and would be just the third move since December 2015; see also: U.S. jobs report supports Fed rate increases and USTs face Fed, debt ceiling, credit issuance
  • Bank of Tokyo-Mitsubishi (Chris Rupkey, note)
    • Fed’s updated 2017 forecasts should show at least three more hikes this year (after March) with moves in June, September and December
  • BofAML (Michelle Meyer, note)
    • Fed’s doves seem more comfortable with hiking cycle, while hawks are probably more enthusiastic about higher rates
    • Though a close call, it’s “more likely than not” that median dot still implies three hikes this year
    • Risk is that 2018 median dot moves higher, implying four hikes
  • Citi (Dana Peterson, Andrew Labelle, note)
    • Greater attention is likely to be paid to Fed’s forecasts than rate hike
    • Most recent data, plus lack of guarantees on fiscal stimulus, should cap Fed’s dots at three hikes per year
    • Even so, markets will want to see if long-run policy rate target rises above 3%
  • Credit Suisse (James Sweeney, others, note)
    • SEP to shift in more hawkish direction; rate projections are likely to drift higher for approaching years and possibly even in long run
    • While FOMC’s core members should stay put at three hikes for 2017, “the risk of a hawkish surprise is substantial”
  • Goldman Sachs (Jan Hatzius, others, note)
    • “Close call” whether FOMC hikes three or four times in 2017, but there should be earlier balance-sheet normalization
    • Fed rate increases are now seen in March, June and September vs previous expectation of March, September and December
    • Forecast for start of balance-sheet normalization pulled forward to 4Q 2017 from mid-2018
    • MORE
  • Market Securities (Christophe Barraud, note)
    • Base case is that FOMC’s median dot continues to signal three hikes in 2017; seems “a bit risky” to move up to four hikes, given lack of details about U.S. budget
    • 2018 median dot is even less likely to be changed, and there’s “no reason to expect a significant change” in 2019 or long-run projections
    • Fed’s 2017 forecast for GDP and core inflation should move higher, while statement will send slightly hawkish signal; even so, Yellen is likely to be more balanced in her press conference
  • RSM (Joseph Brusuelas, blog)
    • Fed is likely to suggest fourth rate increase this year and raise both growth and inflation forecasts, while sticking with three hikes in 2018
    • Central bank is adjusting to improving economic fundamentals and acknowledging expected expansionary fiscal policy
  • Saxo Bank (John Hardy, interview)
    • Feb. employment data backs Fed rate increase on Wednesday, even though that report itself doesn’t boost market expectations for more hikes this year
    • “This is Goldilocks data -- just right for Fed to hike, but not enough to accelerate what is already priced in”
  • TD Securities (Michael Hanson, others, note)
    • Base case, which is given 60% odds, has median dots continuing to suggest three hikes in 2017 and 3% long- run rate despite upward drift in forecasts
    • There’s “modest” risk of higher median 2018 dot; increase in median 2019 dot is likely
    • MORE
  • UBS (Samuel Coffin, note)
    • Fed won’t likely signal four hikes this year; would require four FOMC members to bump up their projections and recent data don’t support such a shift
    • Slowdown in bank lending, recent drop in real consumer spending are among factors that keep FOMC to three hikes in 2017

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Chris Rupkey (Bank of Tokyo-Mitsubishi UFJ Ltd/The)
Christophe Barraud (Kyte Group Ltd/The)
Dana Peterson (Citigroup Inc)
James Sweeney (Credit Suisse Group AG)
Jan Hatzius (Goldman Sachs Group Inc/The)

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