At this point it would be very surprising if the FOMC does not raise its target rate for the funds rate to 1-1.25%, according to the analysts at Nomura.

Key Quotes

“The preponderance of Fed speakers in recent weeks has made no attempt to dissuade markets that a hike is coming in June. The bigger issue at stake is what the FOMC signals about what comes afterwards.”

“Since the March meeting, inflation has been weaker than expected. However, the unemployment rate has fallen more than expected and is now well below the FOMC’s own estimates of the level that is consistent with “maximum sustainable employment.” These two developments would, on their own, tend to push policy in opposite directions. As these are relatively recent developments, we expect the FOMC to acknowledge these movements, but we anticipate only minor changes to its economic outlook. Regarding inflation, FOMC members have stated the weakness is likely transitory. Instead of revising their forecasts materially at the June meeting, we expect more substantive changes in the September meeting after more data become available and a more thorough reassessment can take place. In effect, we expect the FOMC to wait to see how these trends evolve before signaling a change in its economic outlook.”

“On balance sheet policy, we expect the FOMC to continue to discuss its plans for allowing the portfolio to roll off. But we are not expecting a major announcement at this meeting. We do not think the FOMC needs to settle the key issues of when the roll-off will begin, and its initial pace and subsequent trajectory, at this meeting. Moreover, recent statements do not suggest the FOMC has reached a consensus on those, and other, important issues.”

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