CICC reported on June 17 that the market hopes to hear the Fed’s moderate statement issued on Thursday (June 18), even if Fed Chairman Janet Yellen may send a strong signal that interest rate hikes are expected this year.
The Fed will raise interest rates for the first time in nine years in September. CNBC's survey on the Federal Reserve shows that 92% of participants expect the Federal Reserve to start raising interest rates this year, and unanimously agree that it will raise interest rates by about 53 basis points this year, which will be carried out in two sessions, with each rate hike of about 25 basis points.
Western Asset Management John Bellows said: "We expect the Fed to reaffirm the signal of a rate hike this year and is expected to raise interest rates twice. In 2016, four rate hikes are expected. I don't think this expectation will change. This is in a sense exactly what the Fed has been promoting throughout the year. Just a few weeks ago, Yellen also recommended a rate hike this year."
Federal resolution is expected to maintain rate hike expectations and is expected to release dovish signals
Feders officials began a two-day policy meeting on Tuesday (June 16), and will issue a meeting statement. It is expected to hold a press conference.
Nomura interest rate strategist George Goncalves said: "I think Fed officials will continue to discuss the September rate hike and will not raise interest rates in June. They are ready to observe the economic development situation. Every policy meeting before the Fed rate hike is important and they will make fine adjustments. They do look forward to constructive prospects, and they may express dissatisfaction with the failure of the industrial sector to recover, and there is a lot of uncertainty around the world."
The Fed's meeting this week is also expected to release a new "domain chart", namely, Fed officials' estimates of the prospects for interest rate hikes, and the time for interest rate hikes may be delayed. The market expects the Fed to maintain lower interest rates for a longer period of time and provides a slow path to hike rates.
Some people expect the Federal Reserve may also discuss the balance sheet. The bond market hopes that the Federal Reserve will provide clues about maintaining the stability of the $4.5 trillion balance sheet and whether to continue to replace bonds after maturity. The estimated $200 billion in bonds will mature next year, and there will be almost no assets due this year (2015).
Goncalves said the Fed may issue a neutral statement, but because people expect the statement to be dovish and may be hawkish. If the Fed does not lower the “point” of the forecast in its statement, the market will respond.
U.S. stocks rose on Tuesday (June 16), with the Dow Jones Index rising 113 points to 17904; the S&P 500 Index rose 11 points to 2096. Traders say Greek debt negotiations bring some comfort, and although the problem remains unresolved, it is not as bad as some people think. The Fed may also express an optimistic outlook to appease the market. Treasury yields fell, with the U.S. 10-year Treasury yield lasting 2.31%.
UBS director Art Cashin said: "The Fed will help. Before Yellen's speech, there was already bias; when Yellen's speech, the bias was deeper."
Not everyone is convinced that the Fed will raise interest rates in September, as Greek doubts overwhelm the market, and the problems in the US economy are lingering. "I do think that ‘normalization’ is a hypocritical friend. There is still reason to expect the Fed to take major actions or raise interest rates. I think it should be viewed from a global perspective. The combined effect of Japan and Europe's quantitative easing (QE) has been with the Fed's tightening policy. They may dominate the early stages of the Fed or the final effect of normalization."
Usually when Yellen speaks publicly, the U.S. stock market is positive. According to a survey by analyst Kensho, Yellen has made 19 speeches since he became the chairman of the Federal Reserve, with the S&P rising by about 63% and an average yield of 0.24%. Within 10 days after Yellen issued a statement on the Fed meeting, the S&P index rose by about 60%, with a yield of 0.19%. When Yellen presided over the post-Federal press conference, the S&P index rose by about 80%, with a yield of 0.7%.
