Fed to hold rates steady and not give any explicit signals about the future path for policy - TDS

The analysis team at TDS points out that all eyes will be on Washington DC for the May FOMC meeting and rate decision and TDS base case is for the Fed to leave rates unchanged while acknowledging the slowdown in Q1 growth.

Key Quotes

“We expect the Fed to remain upbeat on the labour market, though if they decide to dismiss Q1 growth as transitory we would view that as hawkish.”

“At the May FOMC meeting, we expect Fed officials to hold rates steady and to not give any explicit signals about the future path for policy. That may be dovish relative to high market expectations for a June hike.”

“The statement should acknowledge the softer recent data, but largely look past it as the Committee’s outlook remains positive.”

“Rates: Even though June hike odds are nearly 70%, and may be vulnerable to a correction without an explicit signal from the Fed, the market-implied pace of rate hikes through the end of 2018 appear too low to us. We remain short 5s.”

“FX: The Fed meeting is expected to be a staid affair, and should do little to reintroduce a bid into the USD. We are cautious on the USD into the Fed and look to fade rallies against EUR and JPY.”