FOMC rate decision is the major focus today. Just before last Friday, markets have well received Fed’s communication on the 50bps hike per meeting “plan”. But it’s another world now after data showed CPI inflation reaccelerated in May. Fed fund futures are pricing in near 100% change of a 75bps rate hike at this meeting. The question now is what Fed is going to deliver.
The new economic projections will also be closely watched too. The stubborn inflation reading should be reflected in the new forecasts, as well as it’s impact on growth and employment. More importantly, the dot plot will again catch most attention. Back in March, only 7 of 16 FOMC member penciled in interest rate above 2% by the end of 2022. The balance would likely shift further to the hawks’ side. But by how far?
Some suggested readings on FOMC:
- Fed Policy Meeting: Switching to Sharper Rate Hikes?
- FOMC Meeting Preview – The Meeting the World is Watching
- Heads Up: Brace for a Hawkish FOMC Meeting
- Markets Jumped the Gun, Expecting Hawkish Fed Tomorrow
- FOMC Preview: Could the Committee Hike 75bps?
The strong rally, with acceleration in 10-year yield this week is a big surprise. 2018 high at 3.248 was taken out with ease and it’s now close to 161.8% projection of 0.398 to 1.765 from 1.343 at 3.554. Break of 3.167 resistance turned support is needed to signal short term topping, or any retreat should be relatively brief. Sustained break of 3.554 will pave the way to 200% projection at 4.077, which is close to 4% handle.
