Fed likely to increase the funds rate by 25bps – RBC CM

The FOMC rate announcement and Yellen’s press conference top the agenda in a busy day and the Fed will increase the funds rate by 25bps to a range of 1.00–1.25% is baked-in-the-cake and fully discounted by markets in view of analysts at RBC Caital Markets.

Key Quotes

“More important will be Chair Yellen’s press conference, where we should get a bit more detail on balance sheet run-off. It is probably too early to get the initial sizes of the caps, but we may get more on the likely evolution of these. Our economists view the caps as a flexible tapering. Tapering would have been very hard to adjust once it was announced, while caps can be far more data-dependent.”

“Ahead of the FOMC we have US CPI and retail sales (both for May). Outside the US, labour market reports are due in the UK and Australia and NZ Q1 GDP is out overnight.”