US | Fed to skip raising the fed funds rate

Summary

The inter-meeting period was marked by a significant division of opinions among Fed officials: some voting members conveyed a hawkish stance in favor of further hikes, while some others leaned toward a momentary pause in order to carefully assess the effects of the cumulative tightening.

Key points

• Key points:
• Market expectations were increasingly pricing in the possibility of a June hike until some skip-advocating members’ comments just before the blackout period.
• The futures market now assigns a 90% chance for no change in tomorrow’s decision and realigned its expectations with the Fed's plan of holding rates high for longer.
• With progress in getting core inflation down still slow and the labor market still strong, we expect a hawkish forward guidance via the policy statement and the updated SEP.
• Looking ahead, the odds of an additional hike this year seem larger than the odds of a possible start of a rate cut cycle as core inflation remains sticky.
• For the time being, the Fed will buy time to allow for more data to reveal how the economy is evolving.

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