Fed could struggle in convincing markets at today’s meeting – TD

The firm argues that the Fed will want to at least try and maintain a more hawkish hold but “may struggle to
send a sufficiently hawkish message” to markets. TD says that a softer guidance in acknowledging a slowdown in the economy while conveying a lesser bias towards tightening further will not help the Fed’s case.

Adding that downward revisions to the Fed’s inflation forecasts and potentially the dot plots will also do little to convince markets that rate cuts are not yet on the horizon. On the presser, TD notes that:

“Powell will have to walk a fine line by recognising the ground gained towards the
normalisation of the economy while at the same time pushing back on the idea that mission has been
accomplished.”

Amid a likely dovish guidance in the statement, Powell will very much have to portray “guarded hawkishness” in his press conference so as to keep the flexibility in their ongoing battle against inflation.

That being said, TD is of the view that we are moving towards a quicker pace of Fed rate cuts eventually. They are expecting the first one to come in June 2024 with a whopping to total of 200 bps worth of rate cuts primed for next year.