The market isn’t expecting any rate hikes at the conclusion of the Federal Open Market Committee’s (FOMC) meeting on Wednesday. According to the CME Group, investors are pricing in about a 98.7% chance that rates will stay unchanged at 2.25%-2.5% with a 1.3% chance that there will be a rate cut.
Fed Chairman Jerome Powell’s press conference will be the event’s highlight. Market watchers will be looking for clues on the the central bank’s future monetary policy path, as well as when it plans to complete its balance sheet normalization.
Powell previously indicated that the Fed would take a “patient” stance as it assesses crosscurrents. Since those statements, economic data has been mixed.
“The more interesting development will be what the ‘dot plot’ signals about their intentions for the rest of the year,” JPMorgan economist Michael Feroli wrote in a note on Friday. “We suspect the median dot moves down from the two hikes they signaled in December to either no hikes or one hike for this year. We see somewhat higher odds of zero than one.”
UBS economist Seth Carpenter anticipates that the Fed’s “patient” theme will continue. “While the FOMC continues to see a relatively robust U.S. economy, various members are seeing increasing downside risks to the outlook. In his recent comments, Chairman Powell spent considerable time discussing downside risks to the economy and the inability of modal forecasts to properly reflect those risks,” Carpenter wrote in a note on Monday.
Furthermore, Carpenter is expecting the Fed to clarify its balance sheet plans at this meeting. “In testimony and elsewhere, Chairman Powell has said that the Fed is prepared to make an announcement ‘soon’ about exactly when, later this year, they will stop shedding assets from the portfolio. We think that announcement happens at this meeting.”
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Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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