The FOMC meets this week. No action is expected. The question facing market participants is whether the FOMC will use its April statement to set the stage for action in June.
While we do not expect the Fed to signal imminent action (e.g. as it did last October), if policymakers want to maintain optionality for a move in June (which is quite possible), the sentence concerning global risks could be altered.
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We are sticking with our forecast for two rate hikes in 2016 (June and December, though concern/uncertainty over the Brexit vote on June 23 could persuade this cautious Fed – employing a risk-management approach to policy – to hold off until July).
We look for the funds rate to finish the year in the 0.75-1.0% range.
In 2017, we expect four rate hikes (one per quarter), lifting the funds rate to the 1.75-2.0% range by year-end. In her March 29 speech, Yellen said, “the Committee anticipates only gradual increases in the federal funds rate are likely to be warranted in coming years [our emphasis].”