The market expects the Fed will conclude its rate-hiking cycle tomorrow with the final 0.25% increase. However, the economists see “mainly hawkish risk” as investors will closely digest the exact wording of forward guidance in the statement.
“More important will be the exact wording of forward guidance in the statement. The committee will likely remove that they ‘anticipate some additional policy firming.’ But rather than signaling a pause, the committee will want to preserve the option for further rate hikes,” the economists said in a note to Citi’s clients.
Citi’s against-consensus projection sees the Fed rising by an additional 25 basis points in June to a terminal policy range of 5.5-5.75%.
Morgan Stanley equity strategists warned yesterday that the market is not prepared for a hawkish Fed.
“We believe that equities are priced for an optimistic policy outcome (rate cuts in ’23 without the growth downside). If the message delivered at this meeting is more hawkish, it could provide a near-term negative surprise for equities,” the strategists wrote in a note.
Source: Economy - investing.com
