US: A meaty June FOMC – Standard Chartered

Sonia Meskin, US Economist at Standard Chartered, suggests that they expect the FOMC to increase the fed funds target range (FFTR) by another 25bps to 1.75-2.00% on 13 June, and adjust the interest rate on excess reserves (IOER) to 5bps below the upper bound of the FFTR.

Key Quotes:

“We believe the median projected FFTR for 2018 will also rise (we expect an increase to 2.3%). Changes to the 2019 median remain a risk, although such changes face a higher hurdle than for 2018.”

“We believe a steeper FFTR path and a downgrade to cyclical unemployment rate is the most likely outcome. An upgrade to real PCE inflation is possible, but seems less likely to us given that the recent acceleration in core inflation was mostly due to technicals. We do not believe that projections of long-run growth or unemployment rates will change materially.”

“We believe the June statement is likely to reflect the expected movement of policy towards (and ultimately above) neutral, which was already apparent in the March SEP. One way to achieve this would be to alter the phrase “the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run”, thereby acknowledging the policy rate’s progress to the neutral level.”