It’s FOMC day but somehow it does not really feel like that. Or at least not in the typical sense I would say. The Middle East conflict continues to take center stage and even with the central bank bonanza in town this week, markets will stay fixated on US-Iran developments for the most part. Still, it doesn’t mean we can ignore what major central banks have in store for us.
Yesterday, we got the RBA who took the proactive step of delivering a 25 bps rate hike. That brought the cash rate from 3.85% to 4.10% in a 5-4 vote split, with differing views on the timing of rate hikes mostly. So, that’s one down and six more to go this week.
Today, we get the BOC and Fed with the latter arguably one that will be watched closely. That especially since markets were looking forward to rate cuts prior to the war and now are forced to pivot on that view. So, let’s see what analysts have to say about the FOMC meeting today.
Citi- Miran and Waller to dissent on rate decision (8-2 in favour of hold)- No major changes expected in the statement- Dot plots to stay unchanged, inflation forecasts to be adjusted higher- “We see risks tilted dovish at the FOMC meeting. Markets have focused on the surge in energy prices
presenting upside risk to inflation. But Fed officials are likely to see the jump in oil prices as a temporary supply shock that can
be “looked through” so long as it is not too persistent. Meanwhile, job growth that has slowed near zero and the recent
slowdown in consumer spending will have raised concern about downside risk to employment.”- 25 bps rate cuts to follow in April, July, September
BofA- Miran and Waller to dissent on rate decision (8-2 in favour of hold)- Limited changes expected in the statement, to emphasise added uncertainty from US-Iran conflict- Dot plots to stay unchanged- “We don’t think the Fed needs to cut any further, but the majority of the committee is still holding on to a low neutral rate
view. This opens the door for additional cuts if there is any blip in the data, particularly since incoming chair Warsh has been
strongly advocating for cuts.”- “With an April cut almost entirely priced out, Powell’s ability to guide markets depends on the
extent to which they perceive his comments as representing the committee’s consensus rather than his own views.
Even setting this constraint aside, Powell will have his work cut out for him.”- 25 bps rate cuts to follow in June and July
JP Morgan- No material changes in statement on description of the labour market or inflation- “We look for the median dot to continue to look for one cut this year, though
with elevated odds (a hair below fifty-fifty) that it moves up to show no cut.”- “Any endorsement of a policy of looking through transitory energy price inflation will be conditional on
stable inflation expectations.”- Powell press conference should reaffirm that “policy is in a good place to address risks to either side of its mandate”- No rate changes through the whole of 2026
Goldman Sachs- Miran, Waller, Bowman to dissent on rate decision (7-3 in favour of hold)- Little change expected on dot plots, inflation forecasts to be adjusted higher- “Statement to acknowledge that the war has increased uncertainty about the outlook and is likely to raise inflation and
weigh on economic activity in the near-term. Also likely modestly downgrade its description of the labour market.”- “For the Fed, the war increases both the risk that earlier rate cuts will be needed to address labour market
softening and the risk that a higher inflation path will delay cuts.”- 25 bps rate cuts in September and December
This article was written by Justin Low at investinglive.com.
