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