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FOMC: Preview June Rate Decision

Wed, Jun 24 2009, 14:10 GMT
by RANsquawk Research Team

RANsquawk

Current Base Rate: 0.00% to 0.25%

Consensus: 0.00% to 0.25%

• Expect a more sanguine economic outlook, though will likely say recovery to be slow and protracted
  
• Show a commitment to long term ZIRP (zero interest rate policy) and play down inflation in the near term
  
• FOMC likely to keep its asset purchase program targets unchanged; though could spring a surprise by altering the size/balance of Treasury and mortgage securities it purchases after the recent spike higher in yields
• FOMC could outline exit strategies for its liquidity programs
  

The FOMC is widely expected to keep rates on hold this month and refrain from any major policy shifts related to its asset purchase program as economic data points to a stabilization in conditions. However, there has been recent speculation that the Fed may need to raise interest rates sooner rather than later to fend off inflationary pressures. Therefore, the FOMC may use the meeting’s statement to emphasise their commitment to low rates for an extended period to quell market concerns.

There is a general consensus among market participants that the FOMC will keep rates on hold until at least 2010 as it does not want to withdraw liquidity at a pace that may prolong, or even jeopardise the recovery. This makes sense, especially as the US unemployment rate nears the 10% mark and lending remains strained amid economic uncertainty. As such, the Fed would be reluctant to raise rates or wind down its asset purchase program until it was convinced the economy was on a sustainable recovery.

• Download full report with charts

Published on  Wed, Jun 24 2009, 14:11 GMT