SEB Bank: Fed likely to change median forecast for policy rate path

SEB Bank analysts suggest that for the upcoming Fed meeting which is concluding on 20 March, there is little doubt that the US central bank will maintain the target range for fed funds rate at 2.25 to 2.50%.

Key Quotes

“Revisions to Fed’s econ projections are likely to be relatively small but we expect median forecast for policy rate path (‘the dot plots’) to shift from indicating two rate hikes in 2019 to unchanged rates.”

“The Fed is finalizing its plan for the balance sheet but the result will likely be presented at the 1 May meeting rather than at the March meeting.”

“A first quarter growth slowdown reinforces the Fed’s “wait-and-see” approach. However, US economic activity should accelerate in the second quarter while Chinese stimulus along with a softer monetary policy from the ECB means that the global outlook should improve.”

“We expect the US & China to reach a trade agreement in coming months. Financial conditions have eased in 2019 as stock markets have rebounded. In light of expectations of an improving outlook we are sticking to our forecast that Fed will deliver a final hike in June.”

“The tight relationship between Fed policy and the USD is pretty much gone. Unless the Fed delivers a very unexpected story the USD is unlikely to react much.”