Here’s the view of tonights FOMC meeting from some of the banks
Goldman: We expect only limited changes to the FOMC statement at the January meeting, with an overall slightly dovish tilt likely. We expect the Committee to maintain its current guidance that it “can be patient in beginning to normalize the stance of monetary policy.” But we also expect a modest adjustment to the inflation language, possibly to acknowledge—as indicated in the December minutes—that inflation is likely to continue to decline further in the near-term.
BNP Paribas: BNPP economics team is looking for Wednesday’s FOMC statement to closely resemble what was communicated back in December, with the Committee consensus looking beyond recent oil-fuelled drops in headline inflation and holiday distorted weakness in earnings. Confirmation that the FOMC has not changed its view since December should allow markets to rebuild Fed rate hike expectations, supporting the USD,” BNPP argues. We are particularly focused on upsides prospects for USDJPY and USDCHF this week. The risk scenario for our view would be some evidence of increased Fed concern with falling headline inflation rates or, more significantly, some reference to the disinflationary impact of USD strength.
JP Morgan: The focus will be on the weight the Fed will put on the recent soft core CPI and wage growth prints. Our economists expect that the FOMC will be noncommittal next week and reiterate that is can be patient in normalizing interest rate. There will be no press conference and forecasts, just the statement in which we expect the growth description to continue to sound upbeat and the mention that the Fed will “monitor inflation developments closely”
Credit Suisse: We expect the FOMC will make only minor adjustments to its December 17 policy statement. Regarding its forward guidance, the committee probably will do little more than remove the sentence equating its new “patience” language (introduced in December) with its previous “considerable time” text. The rates market is pricing for an exceptionally gradual pace of Fed hikes, with the first hike not fully priced until Q4, leaving the market more vulnerable to a hawkish reassessment of both the timing and pace of hikes. A dovish adjustment would more or less confirm the current pricing for later and slower Fed hikes. It seems unlikely that this meeting will provide a sufficiently hawkish innovation to catalyze such an adjustment, however, with only minor tweaks to language likely. We think the larger-than-expected ECB QE announcement and the unexpected BoC cut reinforce the prospect for policy divergence and further our strong USD outlook.
Morgan Stanley: The Fed announcement will be an important topic today. Risk markets are geared for the Fed to react to 5-year inflation expectations falling towards a new cycle low. Should the statement stay unchanged, market disappointment could put equity markets under further selling pressure. Should the Fed remove “patient” from its statement, the risk-bearish interpretation will likely intensify.
Citi: We see more room for a hawkish rather than dovish surprise. Keeping patient is fully expected and there is almost nothing priced into March or April s meetings. Hawkish emphasis is anything that even suggests a mid-year hike as a real possibility, any sharpening of the language with respect to the pace of unemployment decline, expression of confidence that the US economy is on pace for 2.5-3% growth or reaffirmation that lower oil and lower interest rates will support growth. Given the shifts in rate expectations to the downside, any modest degree of optimism will sound hawkish.
Credit Agricole: Improving US labour market conditions have been keeping Fed rate expectations well supported to the benefit of the USD. Regardless of falling inflation expectations as indicated by 5y forward breakeven rates, we expect the Fed to keep a more hawkish monetary policy stance. Several Fed members already indicated that moderating price developments are regarded to be transitory. This in turn suggests that the main focus remains on improving labour market conditions when it comes to the setting of interest rate expectations. As such we expect EUR/USD to resume its downtrend soon, especially as the latest upside has been largely driven by position-squaring rather than by a change in fundamentals.
HSBC: In January, we expect the FOMC to repeat that it will be patient with regard to normalizing monetary policy. This would effectively rule out rate hikes at the next two policy meetings in March and April. Downward pressure on inflation means the FOMC is unlikely to raise the federal funds rate before September, we believe.
Danske: We do not expect any major announcements at the FOMC meeting on 27-28 January. There will be no press conference or updated economic projections – the only information we get is an updated statement and possibly a small adjustment in the FOMC longer-run goals and monetary policy which is updated each January. We expect only small changes to the FOMC statement and most importantly we expect the statement to repeat that the FOMC can ‘be patient in beginning to normalize the stance of monetary policy’. At the December press conference, Yellen explained that patient is consistent with the Fed staying on hold for at least the coming two meetings. This would in effect rule out hikes at the March and April FOMC meetings. To sum up, we expect no major market reaction to the statement this week. More important will be the signals in upcoming Fed speeches and not least the ECI index to be released on Friday. We stick to our view that the Fed will deliver a first 25bp rate hike mid-year, most likely at the June FOMC meeting, but that the pace of rate hikes thereafter is likely to be modest
Nomura: At the first policy meeting of 2015, we do not expect the FOMC to do anything dramatic to alter the expected trajectory of policy. The minutes from the December meeting stated that most FOMC participants believed that the first rate hike was more than a “couple” meetings away. This essentially rules out “liftoff” before June (the meeting in April has no scheduled press conference.) We would argue that the recent downdrafts for core inflation make an interest rate increase in June less likely. As reported in the minutes to its last meeting, the Committee did not expect to be deterred by developments abroad. However, since then, economic indicators, notably core CPI, have come in below expectations. Ultimately we expect the FOMC to put off its first interest rate hike until September, but we do not think that the Committee will want to send that signal at the meeting next week.
BofA Merrill: Bank of America Merrill Lynch expects the January FOMC meeting to be relatively uneventful with few changes to the statement language and there are no forecast updates or a press conference after this meeting. The most likely change in the statement should be a minor tweak to the policy language. Mention of the equivalence between the “considerable time” guidance and the current “patient” approach will most likely be dropped, leaving just the latter language. At some point the Committee will need to distinguish patience in the timing of liftoff from patience in the pace of hiking, but we don’t expect that clarification for at least another meeting. Behind the scenes, however, the debate over the outlook — particularly for inflation — and the implications for the timing of liftoff is likely to be more extensive. The minutes, and not the statement, will be where this debate is most likely to play out, in our view. Recall that this meeting incorporates new voting members, giving a modestly dovish sheen to the Committee
Deutsche: we do not expect any substantive changes to this afternoon’s FOMC meeting statement relative to December. Moreover, the forward guidance that Chair Yellen articulated last month, which removed the possibility of rate hikes at the next “couple of meetings” largely renders today’s FOMC statement a placeholder for March, by which point Fed officials will have a better sense of whether or not recent momentum is being sustained.
SocGen: The big event of the week looms ahead: US 1-yr rates, 1-yr forwards are priced at 1.13% today, which looks like no-man’s land. If the FOMC maintains its current path, indicating that all things being equal rates will rise in 2015, that rate is likely to re-test the end-Dec high at 1.40. If the Fed backtracks at all, we’ll be back below 1%. The dollar will take its cue. We still expect the FOMC to stick to its course, allowing shorter-term rate pricing to adjust upwards while anchoring longer-term rates.
BTMU: We doubt we see much change in the statement today and any tweaks to the statement are unlikely to impact the dollar greatly. We do see risks of the FOMC being able to delay raising rates but the semi-annual testimony in February will be the platform for the Fed to relay any communication change, not today’s FOMC statement.
Barclays: We do not expect any major changes to the Fed’s policy stance at the January FOMC meeting. The committee will likely drop the reference to its prior use of “considerable time” in its policy rate guidance while retaining the language that it expects to be able to remain patient before removing policy accommodation. Since the committee met in December, incoming data have moderated relative to Q3, but the committee likely expected this and we expect it to leave its assessment of economic activity and the outlook largely unchanged. We do not expect the committee to signal that downside risk to its inflation outlook has risen, since this would likely lead markets to expect a change in the Fed’s mid-2015 rate hike guidance; we do not see the Fed as ready to send this signal this far in advance.
RBS: RBS sees little to no changes on the Statement given that: (i) the Committee wouldn’t want to create new uncertainty/disturb the ‘equilibrium’; and (ii) there is no press conference to explain any meaningful alterations. Plus there hasn’t been any new major developments in the economy since the Dec meeting. Steady as she goes. And if so, that would be uneventful for the Dollar and US rate markets.
UBS: The FOMC is likely to stay on hold this week even though the continued fall in crude oil prices and the ECB’s $1.3 trillion QE have hit the Fed’s tightening expectations. UBS still expects the first move at the June 17 meeting.
CIBC: the Fed will struggle to say or do anything as surprising as the BoC or ECB the previous week. It could sound a little more dovish regarding the infl ation outlook following recent disappointments in wage growth and core CPI, but should still maintain its “patient” stance regarding eventual rate hikes.
SEB: FOMC to stay patient at the rate announcement today. Sluggish inflation is replacing unemployment as the main reason for later rate hikes. While liftoff can occur at a time when core inflation is close to its current levels, FOMC forecasts must point towards higher core inflation for liftoff to occur. It is our understanding that the FOMC has its eye on the June 16-17th as most likely meeting for liftoff. Our forecast, however, is that liftoff will come at the September 16-17th FOMC meeting. With respect to the statement, the FOMC will maintain its current language that it can be “patient” before normalizing monetary policy. We see some scope for a slightly more dovish Fed as they will lower their short-term inflation forecasts. However, this should be weigthed against a need for Yellen to build a slightly hawish case ahead of the Fed testimony and deliverance of the semiannual MPR to the Congress in February– that is if there still is a concensus for raising rates this summer.
NAB: Our central scenario is that the FOMC simply rolls out a statement largely unchanged from December, and forges toward rate hikes in mid-2015. Any upgraded notes of concern from the Fed about soft inflation, weakness in trading partners, or the stronger USD would likely be taken as a dovish signal.
I thank EFX for doing the hard work here. I felt a bit guilty for just C&P’ing it so I got my crayons out and highlighted the dovish/hawkish aspects for you. Aren’t I good?
Don’t forget you can check out the rest of what EFX has to offer right here
