Investors will focus on what the Fed does after reaching neutral – TDS

Analysts at TD Securities (TDS) offered a brief preview of this week's key central bank event risk - the highly anticipated FOMC monetary policy decision on Wednesday.

Key Quotes:

“With markets pricing in 78bp of hikes in July, investors will focus on what the Fed does after reaching neutral. The potential for more hikes given a sticky inflation backdrop is likely to put upward pressure on front end rates and flattening pressure on the curve. We remain long 2y TIPS BEs and long 30y real rates to position for still high near-term inflation and great fears of recession.”

“A heavy US-centric week with the Fed decision and top-tier data releases including ECI, core PCE, and real GDP. We think FX markets are waiting to see how these event risks unfold to establish a directional view on the broad USD. We do not get the sense that this meeting carries a great deal of weight despite our expectation for a 75bp hike. And, with markets about 50/50 priced for a 75bp hike in September, we think focus will be placed on the activity data between now and then.”