Fed officials can speak tough enough at their June meeting that it would amount to an actual rate hike. Markets are placing a low probability that policymakers will agree to what could be the 11th consecutive rate hike since March 2022. But the rate-setting Federal Open Market Committee can still highlight that policy is likely to remain tight going forward, though. Even though the market is pricing in that the Fed will cut by at least half a percentage point before the end of 2023, according to an analysis from Evercore ISI. “Expect a continued pushback on early rate cuts and efforts to underscore the possibility of further hike: this could serve as an alternative to a hike in June,” Krishna Guha, the firm’s head of global policy and central bank strategy, said in a note. “In fact, the June deal may have a clear tightening bias versus a pause.” Traders in federal funds futures set a roughly 1 in 4 chance that the FOMC will increase its benchmark rate by another 25 basis points after the June 13-14 meeting, according to CME Group’s FedWatch tracker. The fed funds rate is currently targeting in the 5%-5.25% range after it was close to zero prior to the start of the hiking cycle. A basis point is 1/100th of a percentage point. Several officials have spoken out publicly in recent days, most of them taking a cautionary tone about the path ahead while noting globally that inflation remains too high. In separate interviews with CNBC on Monday, Atlanta Fed President Raphael Bostick said he would be more inclined to raise interest rates rather than cut them at this point, while Chicago President Austin Goolsby said it was too early to say what the next move would be. Conversely, Cleveland President Loretta Mester skewed to the Hawks, saying she wasn’t convinced the Fed had gone far enough in its fight to bring down inflation. On Friday, Chairman Jerome Powell will speak at the Federal Reserve’s “Perspectives on Monetary Policy” forum in Washington, DC. How an “alternative” increase in the sum of the Fed’s multiple speeches in recent days could occur, Guha concluded, “we see little clear evidence in an effort to prepare for another walk in June.” “All Fed officials are keen not to rule out a June rally with more data coming and we wouldn’t completely rule that out either,” he added. Still, he expects officials to take the data through the summer “and make a call in September about whether it’s done enough but needs to keep waiting for a long time, needs to raise interest rates more, or should soften its opposition for a month.” Possible Dec. Price Cut (Our Base Case)”. The “alternative” rally could reaffirm comments from the June meeting that the Fed is firmly committed to fighting inflation and unwilling to ease anytime soon. Members will be able to express their outlook for rates through a dot plot of what they expect this year through 2025 and for the longer time frame. Recently, a week ago, the markets were pricing in nearly 80% of the chance of reduction in September. But some tameness in the inflation data, stronger economic signals and repeated statements from central bankers that cuts were not in their expectations led to a turnaround. CME Group data shows that the first cut is now not expected until November, with a 67% chance of another follow-up in December. Fed fund futures imply a fund rate of 4.585% by the end of the year, from the current 5.08%. Guha said the “general thrust” of the Fed’s comments would be a “pause” which would keep policy options open. “Given the sluggishness and noise in the data, as well as the high risk of shocks from the debt ceiling crisis, September appears to be the right decision horizon absent a very strong bullish surprise in the data in between, although one should not expect the Fed to say It’s off until then.”
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