U.S. Desk Strategy Market Views

June 2024 FOMC Preview: Hawkish Dots, Dovish Talk?

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Summary: Net, post NFP sell-off, we expect markets to react to the hawkish move up in the dots initially but anticipate an overall neutral outcome later because markets are expecting higher dots and we also do not see Powell sounding hawkish at the presser either.

See scenarios bias and potential drivers below


June FOMC Scenarios




Hawkish Hold


  • ‘24 dot is at 2 cuts (but we get another on hold dot), ‘25 & ‘26 dot is less dispersed, and the long-run (L/R) dot goes up
  • Powell does not say ignore dots, focuses on higher for longer
  • Market Impact: Major sell-off in all assets, dollar rebounds

Base-Case: Neutral Hold


  • ‘24 dot now 2 cuts, ‘25 & ‘26 have 3 cuts, L/R dot @ 2.75%
  • This is likely market scenario, so depends on Powell’s presser
  • Market Impact: minor selloff post dot digestion, then go flat

Dovish Hold


  • The ‘24 dot goes to two 25bp cuts but 2025 shows four cuts
  • Powell reiterates if CPI declines, can still cut with solid NFPs
  • Market Impact: Rates recoup much of the NFP induced losses

Very Dovish Hold 


  • The ‘24 dot stays at three 25bp cuts, U/R rate higher than 4%
  • Powell says jobs data quality issues argues not to wait to cut
  • Market Impact: Big bull steepening, strong risk- on in assets


Future Rate Cut & QT Scenarios for the Balance of 2024

US Macro View: The higher rate burden, 1st on the federal gov’t (that's driving fiscal-based growth which needs lower rates to function) and 2nd on non-wealthy households, small businesses and 3rd its hitting CRE/Bank balance-sheets, will result in a further material weakening of macro conditions.

Fed Rates View: We maintain our view that the Fed Funds rate is at least 100 to 150bps too high, where the Fed needs to feel through the dark to determine neutral (in our view it isn’t 5.4%). We have been of the view they should cut in July, but after May’s NFP report, the 1st cut comes down to if the Fed is as equally concerned as us about the divergence displayed in the jobs data. Cutting sooner allows them to gauge data in the summer too and avoid the 1st cut so close to the election. Net, we’ve shifted our scenario probs and outcomes below and will reassess post FOMC.

Fed B/S View: We believe the Fed wants to keep QT until reserves in the banking system get to 8-10% of GDP. Even if they cut rates (as we expect later) that won’t preclude them from continuing QT (esp. if cuts do not bring rates sub neutral - i.e. 3%). We think the 2nd step in the QT taper process is to change the balance-sheet (b/s) composition. Later we expect them to use MBS & UST proceeds toward short-term USTs as auction add-ons. Even further ahead, we see the b/s growing again too.


Please see the link above for the PDF with macro and market charts and scenarios table…

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