FOMC Preview: Expect increase in the federal funds target to 0.75-1.00% - Nomura

Research Team at Nomura expects the FOMC to increase the federal funds target to 0.75-1.00% at the conclusion of their next meeting.

Key Quotes

“Over the past two weeks, many FOMC members, including Chair Yellen, have sent clear signals that they will raise the federal funds target next week, barring any drastic changes to the outlook.”

“Since the January meeting, financial conditions have improved and the risk that the economy is gaining momentum has increased. Therefore, we expect that the distribution of the FOMC participants’ policy rate projections (the “dots”) will likely become less dispersed largely because the lower tail of distribution shifts to the median. However, we expect the median of the participants’ policy rate projections for 2017 and 2018 to remain unchanged, implying three hikes for 2017 and 2018, respectively.”

“We do not expect changes to the FOMC’s long-term forecast for the policy rate. Elsewhere in the SEP, we expect only small changes to their GDP or unemployment rate projections. The median of their forecasts for core PCE inflation for 2017 could be revised up slightly to 1.9% from 1.8% previously, reflecting the recent firming of core goods prices.”