FOMC: Focus on the normalization pace in 2018 - TDS

With markets fully priced for another 25bp rate hike, focus will be on the normalization pace in 2018 — particularly the dot plot, suggests the research team at TDS.

Key Quotes

“Our base case is for no change in the 2018 median dot, but we do see risks for the distribution to skew higher.”

“Conversely, there is also some risk that markets may take a dovish signal should Yellen’s final press conference suggest some further concern about persistently low inflation.”

“Rates: Treasury investors will focus on the Fed’s tone regarding the pace of hikes, their tone on inflation, the reaction to fiscal easing, and the terminal rate for direction.”

“FX: Despite two-sided Fed risks, with so much priced in we look for a modest correction in the USD, especially if caution on inflation is reinforced.”