Commentary signed by François Rimeu concerning the upcoming FED meeting.
It is widely expected that the Federal Open Market Committee (FOMC) will hike rates by 25 basis points (bps) at its May meeting; with rates peaking in the target range that Fed policymakers projected in December and March.
Please find below what we expect:
- The FOMC to hike rates by another 25 bps to a range of 5.00%-5.25%.
- Chair Powell to indicate a pause in June in order to assess the cumulative effect of the tightening of monetary policy to date, while keeping the door open to more rate hikes.
- Chair Powell to signal that monetary policy is conditioned on the outlooks for both inflation and real economic activity.
- The statement will provide as much as flexibility as possible.
- Jerome Powell to reiterate that the Fed needs to keep interest rates high for longer given the risk of persistently high underlying inflation, and that Fed policymakers do not anticipate rate cuts this year.
- The Fed to continue its quantitative tightening at a rate of $95bn per month.
In summary, we expect that the FOMC will indicate a pause in June to gauge the extent of the tightening of lending standards. Nevertheless, Chair Powell is not expected to signal that the Fed tightening cycle is over: the statement language is important because the Fed does not want to prematurely ease financial conditions. We believe this committee will have limited impact on U.S. interest rates, even if we acknowledge that finding the right balance might prove to be difficult for Mr Powell.
This commentary is provided for informational and educational purposes only. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.