FOMC meeting: real interest will be if FOMC raises year-end rate targets - NBF

According to analysts at National Bank of Canada, the real interest on Wednesday will be to see if the FOMC will raise its 2018 and 2019 end-of-year targets for fed funds rate, as market participants think a rate hike is a done deal. 

Key Quotes:

“In the U.S., the Federal Reserve will decide on monetary policy on Wednesday. Heading into the meeting, market participants think a rate hike is a done deal. This is also our opinion. The real interest will be to see if the FOMC will raise its 2018 and 2019 end-of-year targets for fed funds rate. For that to happen in 2018, at least four of the 12 members who were projecting the appropriate fed funds rate to be 2.125% or less at the end of the year would have to revise their assessment upward. That is conceivable considering the additional stimulus arising from the passing of the Bipartisan Budget Act which raised spending caps. However, in light of disappointing wage growth data for February, we don’t see that scenario materializing.”

“For 2019, on the other hand, we believe the median dot plot will show three rate hikes for the year as a whole, one more than previously estimated. This is in line with our own forecast.”

“In other news, durable goods orders probably bounced back in February if the new orders subindices of the ISM and Markit manufacturing PMI reports for that month are any guides. February sales of both new and existing homes likely increased after sizeable retreats the prior month. We’ll also keep an eye on the release of Markit’s composite PMI for March.”