We expect the FOMC will acknowledge increased uncertainty around the outlook and ambiguously point to an expectation that the Committee will maintain an appropriate level of policy accommodation, stated Morgan Stanley analyst Ellen Zentner ahead of the July Federal Reserve meeting.
Forecasts For The Fed
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- A hold on the target range of federal funds rate, remaining steady at 0.25 to 0.5 percent.
- A statement to describe a backdrop of moderate growth, further job gains, solid consumer spending and ongoing housing recovery, alongside weak business investment and low inflation compensation.
- Acknowledgment of increased uncertainty.
- Appropriate policy accommodation rather than gradual adjustments.
- A revised statement providing greater ambiguity.
Zentner noted the meeting is minor and contains no supporting materials or Q&A. The low-key atmosphere played a part in the analysts forecasts, especially with holding the federal fund rates steady.
Market Reaction Forecasts
If the above predictions are correct, the Morgan Stanley analyst believes there will be a probability of 50 percent for a rate December rate hike.
Given we expect a muted reaction, we suggest investors remain neutral on duration and curve shape in the US rates market going into the meeting. said the analyst.
At time of writing, the SPDR S&P 500 ETF Trust (NYSE:SPY) was trading relatively flat on the day at $216.35, off $0.78 from the market open of $216.92.
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