FOMC: Taking a break before another move in September – Nordea Markets

Jan von Gerich, Global Fixed Income Strategist for Nordea, suggests that after the rate hike in June, the FOMC’s late-July / early August meeting is set to be uneventful.

Key Quotes

“Rates will be left unchanged at 1.75% - 2.00%, while there will be neither a press conference nor new forecasts. The June statement was already upbeat, and fully in line the next rate hike taking place in September.”

“Given that also the y/y change in the core PCE has hit 2%, the Fed could tweak the part about inflation for items other than food and energy have moved close to 2 percent to take account of that fact. If anything, the strong Q2 GDP data favours even more upbeat language on the economy, though activity was characterized as solid already in June.”

“Though unlikely, a dissent in favour of a rate hike is not totally impossible. After all, the most hawkish FOMC participant projected three further hikes for this year in June vs the median forecast of two.”

“We continue to expect two more 25bp hikes this year, one in September and the other one in December, which is slightly more than the current market pricing. For next year, we look for three further hikes, which is clearly more than the market is currently pricing in.”