MrTopStep’s Index Futures Recap

Nomura:

“Recent commentary from Fed officials does not suggest that a change is imminent. The more interesting question will be how the FOMC’s forecast for the economy and interest rates change. Given the resilience of the economy and the recovery in financial conditions, we do not expect significant changes in the economic forecasts.

However, we do expect a lowering of interest rate forecasts – we expect the median for 2016 and 2017 to fall by 25bp. We do not expect Chair Yellen to send a strong signal about upcoming policy decisions, but rather to stick to the themes of the FOMC statement – i.e., that the economy is on track, the Committee is monitoring financial and foreign developments, that it expects to raise rate gradually, but future decisions will depend on how the economy and inflation evolve,” Nomura adds.

Changes to the FOMC Statement

“The key changes to the FOMC statement that we expect are summarized in Figures 4 and 5. As noted above, we do not expect major changes. Growth and inflation have picked up a bit, which we expect the FOMC to acknowledge. The Fed’s LMCI fell in both January and February, but we think the strength in the core employment indicators from both the household and establishment survey data supports the conclusion that labor markets have improved since the FOMC’s last meeting.

Given the diversity of views on the Committee, reaching a consensus may well be difficult. The Committee can remain in a “wait and see” mode at this meeting, but we believe it may want to acknowledge that financial conditions have improved; it may say so directly. The Committee may also say that risks to the outlook have diminished without saying whether or not it sees the risks as “balanced” or weighted to one side or the other,” Nomura argues.