16 Jun 2014
FOMC preview - Nomura
FXStreet (Bali) - According to Nomura Strategists, no major changes are expected out of the FOMC this week.
Key Quotes
This is an unusual meeting. On one hand, there would seem to be little reason for the FOMC to make news. The economy is evolving largely in line with its forecasts.
Tapering is on track and there does not seem to be an urgent need to take decisions on other important aspects of policy – reinvestment of amortizations, operating procedures, and ultimately interest rates – at this time.
That said, there are a number of reasons to be leery of what this meeting might bring.
First, the Committee will provide a new set of forecasts and Chair Yellen will conduct a post meeting press conference. Second, recent public comments by FOMC participants suggest an active debate within the FOMC on a number of specific issues. Third, there will be some significant changes in personnel.
Two participants are leaving the Committee – Pianalto and Stein – and three new members are joining – Fischer, Mester, and Brainard. At a minimum this turnover has the potential to shuffle the forecasts. It could also change the FOMC's approach to policy in subtle ways.
The Committee and Chair Yellen are likely to acknowledge the pickup in growth in Q2, further improvement in the labor market, and a modest acceleration of inflation.
The key issue for this meeting is what the FOMC will conclude, and what they and Chair Yellen will communicate, about how much closer these largely positive economic developments have brought them to beginning the process of raising short-term interest rates.
The biggest changes in the FOMC's economic forecasts are likely to be for 2014, and merely be a reflection of the data already in hand. The Q2 rebound, including a pickup in inflation, could push the interest rate forecasts for 2015 and 2016 marginally higher. But the more pessimistic long-term outlook expressed by some FOMC participants may actually lead to slightly lower long-term forecasts for growth and interest rates.
Market participants do not seem to be expecting significant changes from this meeting. That could mean that the reaction to any perceived shift in the trajectory for policy could be more significant.
Key Quotes
This is an unusual meeting. On one hand, there would seem to be little reason for the FOMC to make news. The economy is evolving largely in line with its forecasts.
Tapering is on track and there does not seem to be an urgent need to take decisions on other important aspects of policy – reinvestment of amortizations, operating procedures, and ultimately interest rates – at this time.
That said, there are a number of reasons to be leery of what this meeting might bring.
First, the Committee will provide a new set of forecasts and Chair Yellen will conduct a post meeting press conference. Second, recent public comments by FOMC participants suggest an active debate within the FOMC on a number of specific issues. Third, there will be some significant changes in personnel.
Two participants are leaving the Committee – Pianalto and Stein – and three new members are joining – Fischer, Mester, and Brainard. At a minimum this turnover has the potential to shuffle the forecasts. It could also change the FOMC's approach to policy in subtle ways.
The Committee and Chair Yellen are likely to acknowledge the pickup in growth in Q2, further improvement in the labor market, and a modest acceleration of inflation.
The key issue for this meeting is what the FOMC will conclude, and what they and Chair Yellen will communicate, about how much closer these largely positive economic developments have brought them to beginning the process of raising short-term interest rates.
The biggest changes in the FOMC's economic forecasts are likely to be for 2014, and merely be a reflection of the data already in hand. The Q2 rebound, including a pickup in inflation, could push the interest rate forecasts for 2015 and 2016 marginally higher. But the more pessimistic long-term outlook expressed by some FOMC participants may actually lead to slightly lower long-term forecasts for growth and interest rates.
Market participants do not seem to be expecting significant changes from this meeting. That could mean that the reaction to any perceived shift in the trajectory for policy could be more significant.