Big Banks ahead of FOMC statement

Big Banks ahead of FOMC statement

The following are brief expectations for the FOMC May meeting statement as compiled from the related research reports of 10 major banks.
Overall, they don’t expect the meeting to result in a policy change, and expect limited changes to the statement to acknowledge the softness in recent data, but to keep the optionality for a June hike. On the USD front, they don’t see a decisive directional impact.

BofAML Research: We expect little new information to come from the May FOMC statement. The FOMC is likely to tweak the language regarding current conditions, but will avoid offering strong signals regarding the June meeting.

Goldman Sachs Research: We expect the FOMC to keep policy unchanged on Wednesday, with limited changes to the statement. We expect the balance sheet paragraph to allude to eventual reductions, but with sufficiently vague wording so as to avoid signalling any imminent change in reinvestment policy.

Nomura Research: Nomura expects no change in short-term interest rate policy at tomorrow’s FOMC meeting and expects markets to pay ’significant attention’ to the language of the FOMC statement. In that regard, Nomura thinks that it’s most likely that there will be no significant change in language as it relates to the balance sheet.

Morgan Stanley Research: MS argues that the Fed could use its statement at tomorrow’s meeting to prepare markets for a June hike, allowing the USD to rally against low yielders. In particular, MS sees USD gaining against the JPY and has renewed its call for USD/JPY higher.

SocGen Research: The FOMC meeting isn’t expected to result in a policy change, but they will want to keep June ‘live’ and despite softer data, a slightly hawkish bias is likely...Importantly, absent worse inflation data, the Fed is unlikely to sound hawkish enough to stand in the way of a further move higher in EUR/USD, possibly testing 1.10 before the second round vote on Sunday, and breaking higher next week.

Credit Agricole Research: We anticipate a relatively uneventful FOMC announcement. CACIB expects the FOMC statement to acknowledge some softness in the data recently but keep the window open for a hike in June.

Barclays Research: We expect the FOMC to stay on hold at its May meeting on Wednesday, followed by two additional rate increases this year (in June and September) and balance sheet reduction at year-end (December). In its statement, we believe the committee will acknowledge the slowdown and, in doing so, provide itself optionality should the data not turn around; however, it cannot give such a strong nod to softer data lest it unintentionally send a signal that action in June is off the table.

BTMU Research: We expect the Fed to acknowledge the recent weakness in both US economic activity and inflation at tomorrow’s FOMC meeting. However, it is likely to view weakness as only temporary at the current juncture. We do not expect the statement to provide support for the US dollar which is likely to remain on the defensive in the near-term.

ING Research: The FOMC meets today and is widely expected to keep the key parts of its statement unchanged. It looks too early for the Fed to announce changes to balance sheet. At this stage our team’s preference is for a September rate hike and a more serious discussion about the size of the balance sheet after the summer.

TD Research: We expect Fed officials to hold rates steady but more important do not expect them to offer an explicit nod to a June rate hike. Regarding the statement, the Fed is likely to acknowledge the softer tone in the data but will likely look past the weakness in the near-term. We note the wide gap opening up between the USD and rate spreads, pointing to the prospects for a squeeze higher in USDJPY into NFP and Fed speak.

 

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