Fed preview: Powell to deliver a relatively hawkish press conference – BBVA

In a few minutes, at 19:00 GMT the Federal Reserve will announce its decision on monetary policy.  Market participants expect a 50 basis points rate hike. According to the Research Department at BBVA, in spite of positive inflation data and signs since the last meeting, to avoid an unwanted further decline in interest rates along the yield curve, Fed Chair Jerome Powell will likely accompany the FOMC decision with a still relatively hawkish press conference.

Key Quotes: 

“Chair Powell will face two challenges in the press conference: i) trying to convey a clear hawkish message with signs arising in the minutes of the last meeting and in recent speeches that Fed officials no longer hold a consensus view on what to do next, and ii) attempting to avoid an unwanted further decrease of interest rates along the curve by stressing that inflation remains too high and the job of bringing it down is not done, and thus the Fed will stick to it. Chair Powell will stress the updated projections to convey a hawkish message but the growing weakness in core goods inflation is now difficult for the Fed to ignore.”

“Although the Fed will stick to a hawkish tone and updated projections will show higher rates, inflation easing will most likely pick up in coming months. That together with divisions arising within the FOMC will keep alive the discussion on both the terminal rate.”
 
“For now, we stick with our 4.75%-5.00% peak rate forecast and we continue to think
that the Fed will move to the sidelines until late 2023, but the discussion in 2023 will likely shift from (high) inflation to (weak) growth.”