Fed poised to announce ‘a conditional pause’: Morgan Stanley...

Fed poised to announce ‘a conditional pause’: Morgan Stanley

Timothy Moore

Ellen Zentner, chief US economist at Morgan Stanley, said the Federal Reserve is set to stop lifting interest rates.

“We expect the Fed to deliver a 25bp hike and communicate a conditional pause [when policymakers meet next week]. Two-way risk around the next move means the statement will likely reveal a high degree of flexibility.”

Zentner said a quarter point increase will bring the peak rate of the tightening cycle to 5.1 per cent.

“To signal a pause, the [Fed’s policy committee] replaces ‘some additional policy firming’ with ‘the timing and size of future adjustments’ will depend on incoming information.

“It also notes that the federal funds rate is likely to remain high for a considerable period of time to help ensure inflation returns to its goal. The FOMC reaffirms that it will continue to reduce its holdings of longer-term securities according to plan.”

Morgan Stanley’s rate strategists expect the market to interpret the Fed’s message as a dovish one.