FOMC is widely expected to hike 25bp today - TDS

The FOMC is widely expected to hike 25bp at its June meeting and the statement and Yellen’s press conference should look past the recent data softness and reaffirm three hikes and reduced reinvestments for this year, according to the research team at TDS.

Key Quotes

“Markets appear to expect a “dovish hike,” so unchanged median dots and talk of balance sheet runoff each risk a hawkish disappointment for markets.”

“Rates: With the market already priced for more than a 90% chance of a hike, the hike per se should be a nonevent. We are short EDZ8 and long 3m10y payer spreads.”

“FX: Favor a tactical bounce higher for the USD vs. JPY but a shallower move vs the EUR.”

“There is a very low probability the Fed doesn’t hike in June. In the tail risk of a very poor CPI or retail sales print, the odds of the more dovish scenario below should go up.”