Friday, June 09, 2017

Merrill FOMC Preview

by Bill McBride on 6/09/2017 03:41:00 PM

The FOMC is expected to raise rate at their meeting next week. Here are a few brief excerpts from a Merrill Lynch preview:

The June FOMC meeting will be full of information. Most obviously, we think the Fed will hike rates by 25bp, as widely expected. It is possible – although quite unlikely – that a very weak CPI and retail sales report the morning of the 14th would discourage the Fed from delivering a hike. More likely, however, is that weak reports would influence the language in the statement and press conference.
...
The FOMC is likely to note that the pace of job growth has slowed while the unemployment rate has continued to decline, pointing to solid labor market fundamentals. We also expect the Fed to maintain language that indicates that the weakness in growth at the start of the year was likely transitory and activity is expected to accelerate. On inflation, we think the language will note that inflation has moved below target, but should continue to trend toward 2%. ...

We expect a number of changes to the projections. ... There will be particular interest in the outlook for inflation – we expect the median forecast for core PCE inflation to shift down to 1.7% for this year but think that the median will stay at 2.0% for 2018.
...
We expect the press conference to be focused on balance sheet normalization. Chair Yellen is likely to be asked about the specifics of the balance sheet policy and to elaborate on the potential timing of implementation. ... We also expect Yellen to note that the recent weak data on inflation is likely transitory, but she may provide some hints that she has become a bit more concerned.
CR Note: I'll post a preview over the weekend.