Citibank: Fed’s hawkish dots to be risk-negative

Citibank analysts are suggesting that in today’s FOMC meeting, formal guidance on the “patient” stance of policy will likely be unchanged and they are expecting the committee to acknowledge softer consumption in December and potentially allude to the effects of the government shutdown.

Key Quotes

“We think the most likely outcome in March is that dots, while lower, still present a median path where rates move 25 to 50bp higher over next 2y. This would be hawkish relative to chair Powell’s recent comments that hikes & cuts are equally likely & hawkish relative to rates markets that are pricing marginally higher probability of cuts than hikes even in 2019.”

“Our call remains for the Fed to get back to rate hikes later this year – although risks to the two further hikes we expect this cycle are clearly to the downside.”

“Hawkish dots would be risk-negative, but an announcement that balance sheet reduction will end in July may provide a partial offset.”

“The end of balance sheet reduction will likely be announced at either this FOMC meeting or in May. We expect a Fed full-stop of balance sheet reduction in July.”