FOMC will raise rates today - Nomura

Analysts at Nomura think it is highly likely that the FOMC will raise rates at the 12-13 June meeting.

Key Quotes

“At this point, it would be extremely surprising were the Committee to forego a rate hike. Economic data have indicated accelerating activity over the intermeeting period, with an unemployment rate at 3.8% and inflation approaching the Committee’s 2% objective. Given that economic momentum has accelerated since March, we expect the Committee’s new rates forecast to reflect a total of four rate hikes in 2018, up from three previously. While a rate hike appears likely, we expect the mechanics of the policy change to be somewhat different in June.”

“Consistent with the May FOMC minutes, we believe the Committee will raise the target range for the federal funds rate by 25bp, to 1.75-2.00%, but will increase the interest rate on excess reserves (IOER) by only 20bp, 5bp lower than the top of the target range. Consistent with the May minutes and recent comments by Governor Brainard and San Francisco Fed President Williams in particular, we expect revisions to the post-meeting statement’s forward guidance language.”

“Finally, we expect Chair Powell’s post-meeting press conference remarks, in addition to explaining the IOER adjustment and forward guidance language changes, to largely adhere to points made by Governor Brainard in her speech on 31 May.”