FOMC preview: We do not expect a strong signal - Lloyds

Analysts from Lloyds Bank say that market reaction from Wednesday’s FOMC meeting is likely to be muted but warn that even a minor change in the statement could boost the USD and yields.

Key Quotes:

“US monetary policy is expected to be unchanged in July, so the focus will be on signals of future policy intentions. As there is no post-meeting press conference, changes to the press statement will be particularly closely monitored.”

“This will probably be more upbeat about recent economic data but otherwise we expect little change from June.

“Overall, we do not expect the Fed to send a strong signal this week. We think that a September interest rate hike remains a strong possibility, but for now Fed policymakers are likely to want to leave their options open ahead of upcoming data including most crucially the next employment report on 5th August.”

“If that and other upcoming economic data provide support to the view that economic conditions are improving, Fed Chair Janet Yellen’s speech at the Jackson Hole policy symposium in late August may be used to signal a tightening in September.”

“Given that not much is expected from this week’s meeting, the likelihood is that market reaction will be muted. However, with expectations of a 2016 interest rate rise still low, even a minor change to the Fed’s statement could spook markets and lead to a rise in the US dollar and government bond yields.”