Views from 20 major banks ahead of the FOMC statement.
Goldman Sachs: With respect to the April statement, we do not expect a substantial change in the language. The reference to "strong job gains" may be moderated due to the disappointing March employment report and the comment that "inflation has declined further" could be adjusted as inflation trends have not changed significantly. However, communication on the expected path of policy rates and forward guidance will most likely remain unchanged, apart from removing the reference to the April meeting. We also expect to see no dissents, even though Richmond Fed President Lacker has indicated he would like the Committee to be hiking immediately. While our central forecast of actual policy remains liftoff at the September 16-17 FOMC meeting, this remains a close call vs. December....This means that we see data, not the Fed, as the next key catalyst for the Dollar to resume its march higher, as it becomes clear that weak Q1 activity was once again an aberration. Surprises tomorrow could come in the form of language describing recent data weakness as "temporary", which would be seen as hawkish by the market. Language ruling out June for 'lift-off' would be seen as a dovish surprise.
Morgan Stanley: The Fed should be a non-event. The Fed statement should still see a Fed willing to look through recent data weakness, emphasising the need to hike rates later this year. However, there should be no urgency to bring rate hike expectations forward from here.
Credit Suisse: We expect today's FOMC to produce a modestly dovish policy statement next week as domestic data generally disappointed since its last meeting. Given the committee's explicitly data-dependent stance, we expect Fed officials to acknowledge this soft patch in economic activity.
JP Morgan: The FOMC meets but this should be relatively uneventful as it will be unaccompanied with dots and forecasts revisions. The statement language should be mostly consistent but sound a little more downbeat on growth.
Barclays: We expect the FOMC statement to likely convey that the committee views data in Q1 as an aberration and sees economic growth proceeding at a moderate pace. A more constructive Fed is likely to support the USD as well as weigh on risk appetite, in our view. Our rates strategists maintain the view on front to intermediate curve flatteners.
BNPP: We expect the Q1 soft patch in the US economic activity to be acknowledged but downplayed in todays' FOMC statement. Our economists suggest some changes to the language acknowledging that investment has slowed, balanced by a reference to stabilizing inflation expectations. We do not expect any specific forward guidance on the timing of the lift-off but September remains our base-case. That view is dependent on stronger pace of economic activity in Q2 which we expect to be spurred by a rebound in consumer spending. As our colleagues in Rates Strategy have argued, the front end rally appears overextended, prompting them to recommend a 3s10s flattener trade. While steady language by the FOMC may not by itself change the mind of the rates market, we believe incoming data will, prompting a front-end sell-off in Treasuries and a rebound in the USD.
Deutsche Bank: DB summarizes its expected changes to the April FOMC statement as follows: "Information received since the Federal Open Market Committee met in March suggests that economic growth has stabilized, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators have been mixed, as job gains have slowed but the unemployment rate has remained steady. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment has deteriorated, possibly the result of declines in energy-related capital spending. The recovery in the housing sector remains slow and export growth has remained weak. Inflation has stabilized, largely reflecting a modest recovery in energy prices. Market-based measures of inflation compensation have risen but remain low; survey-based measures of longer-term inflation expectations have remained stable...The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. At this time, the Committee has not decided on the timing of the initial increase in the target range."
RBS: We don't see today's FOMC statement as a 'game changer' for the USD. There is little doubt that market participants expect a dovish tone in the statement in light of the further moderation in economic indicators since the FOMC last met, and we agree. With the rates market pricing the first full rate hike out of December and the USD Index testing its lowest level since early March, we see the market as well prepared for a dovish tinge from the FOMC statement. The FOMC is moving to pure data dependence, and in a data dependent environment the value of FOMC signaling and communication is diminished because the FOMC appears less willing to pre-commit to policy. In the end, we think the USD will be driven by the incoming economic data, including GDP data released just hours before April's statement. Our economists are below the consensus looking for a 0.8% q/q annualized growth rate in the first quarter. Our economists expect a broad based moderation relative to the fourth quarter, though investment in infrastructure (largely in the energy sector) and net exports (stronger USD) may be the largest first quarter drags.
SEB: No Drama from Fed. Today's rate decision is unlikely to offer any major surprises since the Committee has pledged to not raise interest rates at this point and no press conference has been called. The economic slowdown in Q1 (we forecast 0.8% SAAR real GDP growth) is expected to be temporary as extremely cold weather in some parts of the country is partly to blame. Nonetheless, the economic assessment should have a soft tone and the statement may well be perceived as dovish. Markets are pricing in approx. 0.35% and 1.0% fed funds rate at end 2015 and 2016, respectively, well-below Fed's dot plots.
BTMU: The dollar sell-off probably also reflects positioning ahead of the FOMC statement this evening. While understandable, we do not expect the statement to change in any notable way from the statement released after the March meeting. In March, economic growth was said to have "moderated somewhat" - we may see that description changed to "moderated further" but beyond small tweaks like this, we see little change. In fact, when you consider that crude oil prices have increased by about 30% from the low in March and that we've had an inflation report that revealed higher than expected core inflation, there are some grounds for the FOMC to express greater confidence in inflation returning toward the 2.0% level.
Danske: We expect the statement to acknowledge the weakness in recent data but to emphasise that the Committee still views the soft patch in US growth as caused at least in part by temporary factors. While activity data has been weak, inflation data has surprised on the upside with core CPI up 0.2% m/m in both February and March and PCE core inflation (the preferred measure by the FOMC) set to post a similar trend. The statement is thus likely to note that inflation has stabilised lately...We are currently awaiting the next and likely final leg of USD strength and the FOMC this week could sow the seeds for this. Currently, investors appear somewhat reluctant to buy into more dollar upside following recent weak US data and stretched long USD positioning. The FOMC will likely in itself not be enough to trigger more than a temporary blip in EUR/USD though.
Credit Agricole: Indications today that the FOMC members still perceive the recent economic weakness as transitory and are encouraged by the latest developments in (core) inflation should be seen as a small USD-positive surprise. That said, we doubt that the updated outlook will trigger aggressive reprising of Fed tightening risks. As a result, we think that market risk sentiment should remain generally resilient and USD should regain ground mainly against low-yielders like JPY and CHF.
BofA Merrill: At the March FOMC meeting, the Fed took any policy changes in April off the table. We don't expect similar language about June policy at the April meeting. We do expect a more somber description of recent activity. This dovish shift in the near-term view should translate into significantly lower odds of a June rate hike in our view. But any market participants who seek an explicit signal that June also is off the table are likely to be disappointed: the FOMC will want to maintain as much policy flexibility as possible. Fed officials also should stay optimistic about reaching their dual mandate objectives over time. The minutes, released in three weeks' time, are once again likely to be more informative about the state of the Fed debate. Without a press conference or updated projections in April, the FOMC statement will be the focus. The main change is likely to be an acknowledgment of the broadly weaker data for consumption, manufacturing and the labor market in recent months. The Committee may suggest temporary factors (i.e., weather and the West Coast port shutdown) account for much of the 1Q slowdown and thus leave the medium-term outlook unchanged. Meanwhile, the recent firming of core inflation measures may give the FOMC more confidence that downside inflation risks - which rose in the March SEP - have faded. As such, we look for no significant changes in the inflation outlook, although we continue to believe the Fed is under-estimating the persistence of global disinflationary force.
ANZ: FOMC. Since the FOMC last met in mid-March, US data have in been mostly soft, confirming the weak start to the year. That was acknowledged in the downward revision to the FOMC's GDP forecasts last month. The accompanying statement said economic growth "has moderated somewhat". A material change in that assessment does not seem warranted at today's meeting. If anything, indications for April so far are that data remain sluggish. The statement is expected to be dovish.
Nomura: We do not expect the FOMC to signal significant shifts in its policy expectations at its meeting next week. After the major changes made at its meeting in March-just 5 1/2 weeks ago-the amount of new information that the Committee has to digest is relatively modest. Moreover, recent statements by FOMC officials do not suggest major shifts in their expectations, and preferences, for the path of policy. That said, the data that have come in, particularly for the labor market, have been less positive. The FOMC's statement is likely to acknowledge this deterioration. Nonetheless, financial markets have been relatively stable since the March FOMC meeting. We do not expect the Committee to suggest that the recent weakness in economic data has had a notable impact on its medium-term outlook for the economy and policy.
UBS: UBS sees the FOMC at a standstill, held in place by softer growth figures. The result is likely to be limited change in the FOMC statement.
SocGen: Given the recent spate of softer data, there is a rock solid consensus looking for the FOMC to leave policy unchanged and the policy statement to have a dovish bias.
Citi: In this age of diminished expectations investors are approaching FOMC with the view that they will bore as much as possible. Fed funds futures are pricing contract low yields for September, so the risk is that what is neutral to the Fed may be surprisingly upbeat to the market. We would not see this as a big near-term boost to the USD and bond yields, but more a reminder that the Fed remains hopeful that data will improve sufficiently to enable them to lift off in September.
ING: we think the market expectations turned too dovish (clearly reflected in OIS pricing of the fed funds rate outlook and yesterday's broad based USD weakness), suggesting scope for USD recovery should the statement struck a less dovish tone. Indeed, our view that the FOMC won't completely rule out a June rate hike suggests upside risk to USD today. We expect DXY to bounce back towards/above the 97.00 level.
Westpac: The March 18 FOMC statement forward guidance was "that an increase in the federal funds target rate remains unlikely at the April FOMC meeting". Subsequent weaker jobs; retail; orders; production; and business survey data has prompted several Fed officials to indicate a preference to "lean to a little later versus a little earlier". It is now likely that the split apparent in the March meeting minutes over the likely rates lift off date (June or later?) has been resolved: ruling out a June increase may be the updated forward guidance. Through 2014 and into 2015, we have maintained that the weaker growth and soft inflation impulse would see the FOMC delay commencing policy normalisation until September. Given we expect further jobs gains and activity growth to accelerate to 3% in late 2015, we retain this call. However, should jobs flag and/or the inflationary impulse fade, the start to normalisation could be further delayed.
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