US | Fed skips rate rise but hints it is set to hike in July

Summary

The FOMC voted unanimously to keep the target range for the fed funds rate unchanged at 5.00-5.25% but a hawkish shift in the updated SEP signaled that, with a more resilient economy and more stubborn inflation, nearly all members think that the Fed needs to do more.

Key points

• Key points:
• The median projection for real GDP growth and core PCE inflation by year-end were revised up to 1.0% and 3.9% (from 0.4% and 3.6% in March), respectively.
• This new scenario was reflected in a hawkish shift for the projected appropriate policy path. The median FOMC participant now projects that the fed funds rate will reach 5.6% at the end of this year.
• Powell said in the press conference that next month’s meeting will be a “live” one, sending a strong signal that a 25bp hike in July is now very likely.
• We now think the odds of a 25 bps hike to a 5.25-5.50% target range in July have risen sharply, but considering that “things are headed in the right direction”, the Fed would likely skip again in September.

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