US FOMC Preview: 10 Major Banks Expectations
We are closing into the FOMC’s April policy meet decision and the
markets are going into the FOMC announcement without many expectations.
As the clocks tick closer to the decision timing, following are the
expectations as forecasted by the economists and researchers of 10 major
banks along with some thoughts on the future course of Fed’s action.
Most economists and analysts expect the Fed to stand pat at the April FOMC meeting
as they continue to assess the impact on the outlook for growth and
inflation from global events earlier this year. In addition, they expect
that the language of the accompanying communiqué should remain broadly unchanged, reflecting a continuation of the “wait-and-see” policy stance but the big question is whether the Fed will keep the door open for a June rate hike or not?
Rabobank
The
apparent slowdown in GDP growth makes an April rate hike by the Fed
even less likely than it already was. The minutes of the March meeting
revealed that the possibility of an April hike was discussed already.
However, recently hawks and centrists have been less vocal about an
April hike. We expect the Fed to remain on hold this month, but we stick
to our call of two hikes this year, most likely one in June and another
in December. However, if the slowdown continues well into Q2 this could
delay the first hike of this year to September.
Deutsche Bank
With
no press conference, all the focus will be on the tone of the
associated statement. The Fed will want to leave the door open for a
June hike but it's hard to imagine that they'll dramatically change
market pricing for it. The futures contracts have nudged up to pricing a
22% probability of a June hike from as low as 14% mid-way through this
month. How much this changes will likely hinge on what extent the Fed
continues to acknowledge concerns about global growth and risks abroad.
On the positive side the weaker US Dollar should give the Fed some
confidence. We think much of the rebound in markets since early February
has been due to the Fed's about turn and re-found dovishness. This
leaves them trapped in our opinion.
Danske Bank
The
key event today is the FOMC meeting, which is set to conclude with
merely a statement (no press conference or projections). We expect the
Fed to maintain the target range at 0.25-0.50% in line with both
consensus and market pricing. Although financial stress has eased and
China has stabilised, we think the dovish members are likely to maintain
a cautious approach and indeed, Fed chair Yellen emphasised downside
risks in her last speech. The big question is whether the Fed will keep
the door open for a June rise or not: as the pickup in inflation has not
'proved durable' and growth has slowed in Q1, we think it will be too
early for the Fed to do so today.
RBS
We
feel today’s FOMC meeting is too soon for an about face in which the
Fed signals a preference for a rate hike at the June meeting. We believe
that the Fed could recognize that international risks have diminished,
but a hawkish shift today risks losing all the gains achieved since the
March meeting (and indeed since the January-February market turbulence):
a weaker dollar, an alleviation of pressure for a yuan devaluation,
higher equity markets, tighter credit spreads, contained Treasury
yields, and generally looser financial conditions. In addition, the
optics of the data this week makes a hawkish shift difficult, where GDP
will likely show near zero growth for Q1 and the core PCE Deflator is
expected to slip back to +1.5% y/y from +1.7% y/y. We do not expect the
FOMC to adjust interest rates or make any meaningful changes to its
short FOMC statement. More specifically, we think the Fed has little to
gain at the moment from trying to “pull forward” market expectations to
give themselves optionality at their June meeting. A hawkish signal, in
our view, would be difficult ahead of Thursday and Friday’s economic
data, which may show GDP growth was likely flat in the first quarter of
2016 and the core PCE deflator edged lower in March.
SocGen
The
odds of this week’s US FOMC meeting delivering a rate hike are zero,
according to Bloomberg. The chances of a cut are higher, but only 2%.
What matters is the tone of the statement but the Fed has painted itself
into a corner. The odds of a June hike are now down at 20% and the FOMC
can’t signal a move without triggering market turmoil. A neutral/dovish
message may provide a modicum of short-term comfort to markets and hold
down the dollar but wouldn’t solve the problem of how to prepare
markets for further policy normalisation.
ING
We
approach this FOMC meeting (27 April) with a rare sense of certainty as
in our view there is no chance of a rate hike. There is even limited
scope for the Fed to move markets with text changes. A wary Fed will
sustain risk sentiment, yet scope for another dovish shot to the USD is
unlikely given the lighter positioning. USD weakness is starting to look
overdone and a window of strength may be nearing. This month’s event is
a non-press briefing meeting and will not provide any additional
materials (FOMC projections, dot diagram, etc). In effect, the text of
the statement is all the Fed can tweak and markets may find that they
have little to take their cue from.
MUFG
We
expect the Fed to retain a cautious stance towards further monetary
tightening at tonight’s FOMC meeting. The Fed may acknowledge that
downside risks from global and financial market developments have eased
recently and sound less dovish than in March. However, we doubt that
the Fed will be confident to signal yet that it is considering raising
rates as early as the their next meeting in June. As such we do not
expect the Fed to judge that the risks are now balanced/more balanced.
The weak start to the year for the US economy will likely keep the Fed
cautious about resuming rate hikes in the near-term.
TDS
TD
expects the Fed to stand pat at the April FOMC meeting as they continue
to assess the impact on the outlook for growth and inflation from
global events earlier this year. The language of the accompanying
communiqué should remain broadly unchanged, reflecting a continuation of
the “wait-and-see” policy stance. On the dovish side, one key risk is
the potential for the Fed to downgrade the economic growth assessment,
reflecting the sustained weakening in domestic economic growth momentum.
And while the inflation picture has also softened somewhat, on net,
that assessment should remain intact. Even though the Fed will continue
to remain data-dependent and keep all options open, we see some risks of
a hawkish surprise in which the Fed signals a June/July hike in rates
is not out of the question. A reinsertion of a “balanced” or “nearly
balanced” risk assessment in the statement will be a significant signal
of a shift towards an imminent hike in rates.
BBH
We
expect the FOMC statement to recognize the improvement in the global
conditions that have been an increasing worry for officials over Q1. At
the same, time the soft patch of the US economy is undeniable. We
suspect the Fed will look past the weakness of the US economy. The
strength of the labor market, with weekly initial jobless claims at
their lowest level since 1973 and continuing claims at their lowest
level since 2000, it is difficult to get too negative the US economy.
BMO CM
Despite
vastly improved financial conditions, faded concerns about China, and
weaker deflationary pressures amid rising resource prices and a sagging
dollar (down 5% on a trade-weighted basis since January’s 13-year high),
no one on the planet expects the Fed to lift rates on Wednesday. Here’s
what to look for in the press statement to handicap the odds of a June
move. If the statement downgrades the assessment of recent economic
growth from “moderate” and retains the key phrase: “global economic and
financial developments continue to pose risks”, then you can likely
sweep June off the table. Instead, if it removes this phrase and
qualifies the recent economic slowdown as temporary, then June will
remain in play. Additionally, while Kansas City’s George looks to
dissent again in favour of higher rates, don’t expect anyone else
(notably Cleveland’s Mester) to join her given the recent soft data.
