Previews of today’s Federal Reserve decision from all the big names
Deutsche Bank: Mixed Message.
Whereas the Fed can no longer definitively signal a July rate hike in the face of a possible labor market slowdown, it will also not entirely rethink its economic outlook. Therefore, as shown in the table below, . Importantly, we do not expect the median interest rate projections for 2016 and 2017 to fall. The FOMC will likely emphasize that it continues to expect "additional strengthening of the labor market", while noting that domestic demand appears to be recovering. To be sure, the Fed’s assessment of consumer spending could be colored by today’s retail sales report. Moreover, the external sector showed tentative signs of stabilizing, as exports increased 1.5% in April. Given that the US equity market is near its historical high and global equity markets have been largely stable since the April 27 meeting, the Fed may indicate that global economic and financial developments have improved since earlier in the year. That said, long-term inflation expectations, as measured by the U. of Michigan survey, are at their lowest level ever (2.3%), and short-term expectations (2.4%) are also depressed. Additionally, the Fed’s five-year forward breakeven inflation rate has moved substantially downward. The Fed had until recently taken solace in the stability of inflation expectations. Therefore, the downturn in the latter will not go unnoticed by the FOMC.
