Dot Plot Update, June 2023
Longer-term rate expectations remain remarkably well-anchored. Midpoint of target range for the Federal Funds Rate, Statement of Economic Projections % March 2023 June 2023
USD
Federal Reserve pauses, warns more tightening is likely
The Federal Reserve’s policy committee left benchmark rates unchanged this afternoon – but put the conditions in place for a hike in July, broadly matching market expectations for a “skip” in the central bank’s monetary tightening trajectory. At the conclusion of its two-day meeting in Washington, the Federal Open Market Committee unanimously voted to maintain the target range for the federal funds rate to 5.00-to-5.25 percent, with no dissents in favour of a smaller or larger move. In the – broadly unchanged – official statement setting out the decision, policymakers said “Holding the target range steady at this meeting allows the Committee...
Risk appetites improve as Fed meeting looms
Risk-sensitive currencies are on the march and the dollar is retreating after US inflation cooled in May, reducing the impetus for tighter monetary policy. The Bureau of Labor Statistics yesterday said headline prices climbed 4 percent in the year through May, down sharply from 4.9 percent in April and well below the 9.1-percent peak reached last June. The so-called “supercore” measure – which excludes highly-volatile food, energy, goods, and housing prices – climbed just 0.24 percent month over month, broadly in line with long-term pre-pandemic averages. Markets are firmly positioned for a “hawkish hold” in this afternoon’s Federal Reserve meeting....
Will the US Fed ‘skip’ or surprise?
• Higher yields. Markets reprice BoE rate hike expectations after UK wage growth quickens. This supported GBP, and pushed AUD/GBP a bit lower.• US inflation. Headline CPI ‘mechanically’ falls, while core inflation is stickier. Tomorrows Fed meeting in focus. A ‘hawkish skip’ looks most likely.• AUD cross currents. AUD mixed overnight. The lift in USD/CNH remains a AUD headwind. A ‘hawkish’ Fed could see the AUD dip lower. There has been quite a bit of news to digest, with some developments, particularly in the UK, generating sharp market reactions. On net, US and European equities added to recent gains (S&P500...
On-consensus inflation print puts Fed on course toward rate “skip”
US consumer inflation slowed as expected last month, giving the Federal Reserve room to skip a rate hike at tomorrow’s meeting. According to data published by the Bureau of Labor Statistics this morning, the headline consumer price index rose 4 percent in May from the same period last year, up 0.1 percent on a month-over-month basis. This was slightly below the 4.1 percent and 0.1 percent consensus estimates among economists polled by the major data providers ahead of the release. With gasoline prices tumbling, energy costs slid 3.6 percent month-over-month, while the food index inched 0.2 percent higher. New vehicle prices fell -0.2...