By Senad Karaahmetovic
Investor fears that the Federal Reserve may deliver a 100bp rate hike at the July FOMC meeting after red-hot inflation data for June are baseless, according to Citi’s Isfar Munir.
The fact that FOMC speakers “came out in force at the end of last week,” likely signals that the Fed “has all but guaranteed a 75bp hike in July.”
The strong pushback against market expectations of a 100bp rate hike will likely translate into the Fed hiking by 75 bps once again, Munir added.
BofA economist Michael Gapen agrees as he expects a 75bp rate hike in July.
“If the Fed wanted a larger rate hike, it likely would have signaled clearly in advance,” Gapen said in a client note.
“The Fed has no problem surprising financial markets on rate cuts, but it strongly dislikes surprising on rate hikes. Hence, if the Fed were inclined to lift rates by 100bp in July, we think it would likely have signaled its intent prior to entering the blackout period last week, particularly since financial markets had already priced in a larger move. We see little in the way of incoming data between now and next Wednesday that might lead the Fed to change its course and maintain our baseline outlook for a 75bp hike,” Gapen added.
The economist also sees no change in policy as far as the balance sheet reduction is concerned.