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    FOMC committee to maintain the Fed funds target range unchanged – Danske Bank Sandeep Kanihama

    Research Team at Danske Bank, suggests that in the US, the most important event this week is the upcoming FOMC meeting, when we expect the committee to maintain the Fed funds target range unchanged at 0.25-0.50% (announcement Wednesday).Key Quotes “This is in line with both market pricing and consensus among analysts. As we believe no one expects the Fed to do anything at this meeting, we expect focus to be on the statement, updated economic projections (especially the so-called ‘dots’) and Fed Chair Janet Yellen’s press conference. In her latest speech, Yellen did not repeat that a hike ‘in coming months’ could be appropriate and she highlighted the downside risks to the US economic outlook, although she thinks the positive factors outweigh the negative ones.Another interesting aspect is the number of dissents. At recent meetings, Esther George has voted for a hike and the question is whether Loretta Mester, who has continued to sound hawkish, will join her. While some individual ‘dots’ are likely to be lowered, we think the median ‘dots’ for this year and next will be unchanged, signalling two and four hikes, respectively. For the median ‘dot’ for this year to be lowered to one hike, eight FOMC members have to lower their ‘dots’ from two hikes and we think this is too many given many FOMC members (even doves) seemed ready to act this summer just before the jobs report.We do not think one jobs report is enough for the Fed to change its view on the economic outlook significantly given that other economic data have been good in Q2. This said, we cannot rule out the ‘dots’ being revised lower but this would be a dovish move.Before the very weak jobs report, markets were preparing themselves for a summer hike but now markets price in only a 75% probability of a hike this year (approximately). We still think it is most likely the Fed will raise rates in September but risks are currently skewed towards a later hike. If September is off the table, the next possibility seems to be December, as the November meeting is less than a week before the US presidential election.”

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