Deutsche Bank’s US economists expect the Federal Reserve to leave rates unchanged at a highly uncertain FOMC meeting, with markets pricing a significant chance of a hike. The report notes renewed Middle East tensions complicate the inflation outlook, while July hike probabilities have swung sharply as Chair Warsh avoids strong guidance, leaving investors focused on today’s policy decision and dissents.

Highly uncertain FOMC outcome

"All that leaves a volatile backdrop ahead of today’s FOMC decision, which is the most finely poised in years in terms of market pricing."

"With a 32% chance of a rate hike today priced as of last night, this is the most uncertain that the market has been on whether the Fed will change rates going into a meeting since December 2018, when the eventual 25bps rate hike was about 65% priced the day before."

"In terms of today’s decision, our US economists expect the Fed to leave rates unchanged but see the risks of a hike as significant with the renewed escalation in the Middle East complicating the inflation outlook."

"If the Fed holds rates steady, they expect at least a couple of dissents in favour of a hike."

"To the day ahead now, the main event will be the Fed’s policy decision."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)