U.S. Fed's policymakers will not change their patient stance – Nordea Markets

Kjetil Olsen, an analyst at Nordea Markets, thinks the U.S. Fed's policymakers will not change their patient stance next week, and its chair Powell will not even try to rock the boat at the press conference.

• We and the market will focus on new views on inflation and inflation expectations.
• The U.S. economy is according to the Fed “in a good place and operating close to both of the Federal Reserve's dual-mandate objectives of maximum employment and price stability”.
• Since the 19-20 March meeting, growth in the US economy in Q1 seems to have held up better than anticipated by the Fed, there are green shoots globally and risky asset has continued to gain.
• On the international front, uncertainties prevail, and it is still a question, whether green shoots continue to grow. If not, investor sentiment could turn again and tighten financial conditions. We, therefore, think it is too early for the Fed to conclude.
• Inflation is still muted and the latest reading for core CPI (at 2.0% y/y) was if anything on the downside of expectations. The majority of the FOMC seems to have been more focused than before and more willing than before to let inflation overshoot the target of 2%, raising the bar for further rate hikes.
• Overall, we think the Fed still feel they are at a good place and don’t think they will want to signal a different view on policy going forward. Market reactions should, therefore, be muted. As there are no new forecasts and the statement is short, focus will be on the press conference. We and the market will particularly look for any new views on inflation and inflation expectations and the discussion around overshooting.