Fed meeting preview: Play it again Sam
While we expect the Fed to stay on hold, it could supply new insight into the threshold for a rate cut (which we consider improbable).
The Fed meeting concluding on 1 May should provide only limited new information.
The domestic growth backdrop is good and equity markets are buoyant, but low core inflation and the proximity of the theoretical ‘neutral rate’ will likely stifle the Fed’s temptations to raise rates. Instead, the Fed should signal it is happy to stay on hold for now.
While the market is still pricing a rate cut as more likely than a hike before the end of the year, we think Fed Chairman Jerome Powell will hint that the Fed’s bias is still towards a rate increase in the medium term given the good US macro fundamentals.
The press conference (now a fixture at each Fed meeting) could provide helpful information about the data threshold for a cut – which we think is still high at this stage.
Our scenario remains that the Fed will stay on hold this year and next. Given the low risk of a US recession this year, we think a 2019 rate cut is equally unlikely.