Fed: Probability of a hike at 90% post FOMC – Deutsche Bank

The research team at Deutsche Bank explains that there were no real surprises to come from the FOMC decision to keep rates unchanged or out of the post meeting FOMC statement but there was just about enough for the market to ramp up the odds for another tightening next month.

Key Quotes

“Bloomberg’s calculator (which overstates a little) now has the probability of a hike at 90% which compares to 67% this time yesterday. With regards to the statement itself the FOMC acknowledged the soft quarter for growth in Q1 and also softness in consumer spending but also emphasised the need to look through it and that the slowdown is likely to be transitory. There was a reference to fundamentals underpinning consumer spending remaining solid and the Committee generally sounded more upbeat on business fixed investment.”

“On the labour market the Fed said that job gains were solid in recent months. The Committee also acknowledged the drop in core inflation in March and that while market-based measures of inflation compensation remain lower, survey-based measures of longer-term inflation expectations are little changed on balance. So all-in-all more of the same.”

“Tomorrow’s Fedspeak could well be more interesting particularly for any snippets around the balance sheet. For now our US economists continue to expect the next rate hike to come in June with high conviction for this view.”