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Jun 06 - 12:55 PM

BofA: What We Expect From next Week's June FOMC?

By eFXdata  —  Jun 06 - 10:45 AM

Synopsis:

Bank of America (BofA) provides an analysis of the upcoming June FOMC meeting, anticipating revisions in the Fed's economic outlook to reflect slower growth and persistent inflation. They project two rate cuts starting in September while maintaining an easing bias in the FOMC statement.

Key Points:

  1. Revised Economic Outlook:

    • BofA expects the Fed to revise its projections, indicating a slower economic growth and persistent inflation.
    • The Fed is projected to introduce two rate cuts this year, commencing in September, reflecting a cautious approach to monetary policy.
  2. Easing Bias in FOMC Statement:

    • The FOMC statement will likely retain an easing bias, signaling caution in monetary policy adjustments.
    • Growth will be described as "solid," even with signs of deceleration.
    • Despite a rise in the unemployment rate to 3.9%, the statement will probably maintain that unemployment has "remained low."
    • Job creation, though slowed in April, is considered solid based on a three-month moving average.
  3. Focus of the Press Conference:

    • Fed Chair Jerome Powell is expected to highlight patience concerning rate cuts, emphasizing the need for more evidence of disinflation.
    • Powell will likely express confidence in the cooling of economic activity and labor markets without indicating an imminent need for rate adjustments.
    • The press conference will reinforce the Fed’s long-term confidence in the economy’s fundamentals while stressing the need for more data before proceeding with rate cuts.
  4. Timing and Policy Adjustments:

    • The Fed is projected to start the cutting cycle in September, reflecting a careful approach in response to economic indicators.
    • The bar for both hikes and rapid cuts remains high, indicating a cautious stance in adjusting monetary policy.
    • The focus remains on ensuring that the inflation trend aligns with the Fed’s goals before any significant policy shifts.

Conclusion:

At the June FOMC meeting, BofA expects the Fed to retain an easing bias while revising its outlook to reflect slower growth and persistent inflation. The projected start of the rate-cutting cycle in September indicates a cautious approach, with an emphasis on accumulating more evidence of disinflation before making significant policy changes. Powell's press conference is likely to emphasize patience and a steady approach, reinforcing the Fed’s commitment to data-driven decisions in adjusting monetary policy.

Source:
BofA Global Research

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