FOMC Preview: Focus on the rationale for a hike and the outlook for the rest of the year - HSBC

Kevin Logan, Chief US Economist at HSBC, notes that the Fed officials have sent clear signals about their intention to raise the federal funds rate at the March FOMC meeting and HSBC expects a 25bp rate hike but the focus will be on the rationale for a hike and the outlook for the rest of the year.

Key Quotes

“The FOMC members will update their economic forecasts and projections for the appropriate level of the federal funds rate for the next three years. We expect that the median projection for the funds rate will stay at 1.4% for yearend 2017, and 2.1% for yearend 2018. If the median projections do not change, then attention will be focused on Chair Yellen’s press conference and anything she might say about factors that will guide the timing of additional rate hikes this year.”

“Yellen may also take this opportunity to discuss the outlook for the Fed’s balance sheet policy. Governor Brainard opened the door for such a discussion when she offered her view that, when they commence, balance sheet changes should be “subordinate” to changes in the federal funds rate. Yellen could elaborate on that and on the likely timing of the commencement of balance sheet changes.”