Fed meeting should be seen as a welcome distraction – Deutsche Bank

With markets really struggling to build up any sort of momentum at the moment, today’s Fed meeting should be seen as a welcome distraction, according to analysts at Deutsche Bank.

Key Quotes

“The meeting takes on a little bit more focus as it’s of course Fed Chair Powell’s debut in the hot seat. So there will be plenty of eyes on what he has to say and what changes in style or messaging he might signal. Indeed, with a 25bp hike as good as certain today our US economists believe that Powell’s performance, along with the answers to whether or not the Committee still sees risks as “roughly balanced” and if the median dots move up, are the three key questions that investors should be looking out for.”

“As a reminder, our colleagues expect the Committee to sound a bit more upbeat (though not yet worried) about inflation developments, and while consumer spending indicators have softened a bit recently, their message about economic activity can remain little changed. They also expect FOMC participants to likely raise their growth forecasts and reduce unemployment forecasts. With regards to the hotly anticipated dots, the team believe that it makes sense to raise the path of rates sooner rather than later. On this basis, they expect the median forecast to move up to four rate hikes this year, from three, although caveat that it could be a close call. Perhaps of more significance for the market though, they expect the entire path of rate hikes to shift up modestly including the terminal rate forecast to 3.3% in 2020 from 3.1% in December. With regards to Powell, the team expect his message to centre on the signs of an overheating economy, and that the Fed’s current tightening action is clearly in order, which would signal that another rate hike is on the way in June.”