FOMC preview: Expectations are high but data do not justify a hike yet – Danske Bank

Analysts at Danske Bank are sticking to their view that the Fed will skip hiking at the upcoming meeting and instead announce the triggers for quantitative tightening (QT), as a data dependent Fed should wait at least one meeting to confirm that recent weakness is only temporary.

Key Quotes

“Given the high expectations of a June hike, the Fed may have painted itself into a corner, as high expectations have weighed on the Fed’s decision before.”

“If the Fed hikes in June, we do not expect an announcement on QT. Instead, we expect it to be postponed until the September meeting. We still think the third hike is most likely in December.”

“We expect unchanged ‘dots’ signalling three hikes per year and see limited chance of a hawkish surprise.”

“We target EUR/USD at 1.09 in 3M and expect only modest impact on Treasury yields from QT.”