Fed likely to maintain target range at 1.75-2.00 pct at today’s meeting, says Danske Bank

The Federal Reserve is expected to maintain the target range at 1.75-2.00 percent at its upcoming monetary policy meeting, scheduled for later in the day, according to the latest research report from Danske Bank. No new policy signals are also expected from this meeting, although the central bank is still on track to adopt two more rate hikes this year.

At the June meeting, the Fed decided to remove several soft sentences from the statement, as it wants more flexibility now the Fed funds rate is close to neutral. Today’s meeting is one of the small ones, where nothing except the policy statement will be the single piece of information, which shall be not much different from the previous one.

The biggest discrepancy is between the Fed's projections for the number of hikes next year and market pricing , also in light of the flat US yield curve, which is regarded as a reliable recession indicator.

Further, the Fed does not expect the yield curve to invert and is likely to continue hiking if it is right. However, the majority of FOMC members have indicated they are ready to pause the hiking cycle if the yield curve (against their expectations) is about to invert. The minutes, due out in a couple of weeks, may shed more light on how the Fed interprets the recent development.

"The Fed is unlikely to stop QT before early 2019 at the earliest but bias among members is to keep it in place for longer. The last increase in the caps is in October. We do not expect any major shifts in the communication on the balance sheet either,” the report commented.