The
growing anxieties surrounding “Brexit” risks, shocking May labor market
report and notable slide in market-based pricing on the future rate path
would arguably support a more cautious tone from the June 14-15 Federal
Open Market Committee (FOMC) statement and Chair Yellen’s press conference.
But uneven data releases thus far, a seemingly extreme environment in
longer-term Treasury yields (with noticeably lower term premiums) and an
ongoing recovery in actual inflation imply that the post-meeting communication
should probably be less lop-sided. Broadly, the forward guidance in the
June statement and Yellen’s remarks did not seem to close the door on a
potential rate hike in July. Therefore, while we are cognizant that the
odds for a delayed rate hike (beyond July) and potentially shallower rate
path (less than 50bps) this year have risen, for now, we maintain our call
for a 25bps increase at the July 26-27 meeting. We will revisit our Fed
call following the release of the June FOMC minutes (released on July 6)
and June employment report (July 8).
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