June FOMC is a close call - BAML

Analysts at Bank of America Merrill Lynch (BAML) released their outlook for the FOMC decision, noting that "June is a close call".

Key Points:

June: the data are not quite strong enough to pull the trigger ... the Fed hints at a later date for changing the balance sheet policy

September: the Fed hikes and offers more details on the reinvestment policy

December: another hike and a formal plan for the balance sheet is released

March 2018: they announce the change to balance sheet policy in the statement, effective April

Fed officials have been preparing the market for a change to the balance sheet policy

This is consistent with the Fed's larger communication strategy - slowly hint at policy changes and test the market reaction

In our view, the Fed is still prioritizing interest rate normalization over the balance sheet

We think that the Fed would like to bring rates to at least a range of 1.25 - 1.50% (two more hikes) before shrinking the balance sheet

We believe it is a tall order for the Fed to deliver two more hikes and change the balance sheet policy before year end

Leaving us to argue that balance sheet reduction is a story for early 2018