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FOMC meeting: Market expectations may be too high and there could be a negative reaction, rising US long-term rates.

09 June 2020

The Federal Reserve will hold its FOMC meeting this coming Wednesday June 10th. Please find below what we expect:

  • The target range for the federal funds rate is likely to be left at 0 - 0.25%. Fed members have expressed several times their opposition to negative rates.
  • No change regarding the IOER (interest on excess reserve). 
  • No yield Curve control announcement: If it the committee’s intention to make such a meaningful announcement, we believe that their communication would have been a lot stronger and clearer. But we also think that they will leave this option open for upcoming meetings.   
  •  A worsening of macro-economic projections with a very prudent tone, continuing to note “considerable risks” to the outlook. The inflation forecast will be below target (2%) until end of 2021 at least. 
  • A dovish “dots plot” with a median dot showing no hike before the end of 2022. This is a “close call”.
  • A “wait and see” approach regarding unconventional monetary policies. We believe they would like to wait until September and for more macroeconomic clarity before committing to any new stimulus plans.

We have the feeling that market expectations are maybe a bit too high on this event and we would not be surprised to witness a negative market reaction on US long term rates (rates higher) during / after the committee. 


Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française AM 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.

 

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