FOMC preview

The two most recent Employment Reports have revealed a much more upbeat picture of the labor market, which has boosted market expectations of a June rate hike by the Fed. 

This had led to a considerable rebound in US treasury yields since early February. Given the better-than-expected labor market data, the FOMC is likely to open the door to a June rate hike. 

In fact, the Fed seems intent on preparing the markets for the first rate hike. Therefore we are likely to see the removal of the 'patient' code word from this week's FOMC statement.

Rabobank notes in a report on Monday:

• However, we still see two reasons why in the end the FOMC may hesitate to pull the trigger in June: deflation and the strong US dollar. We doubt whether the data that will be available in June will be sufficient to hike.
  
  
• So if not in June, what would be the most likely date for a rate hike? Our view that the Fed will not hike before it has completed its checklist has been expressed in a 2015 Q4 rate hike call.
  
  
• If labor market data continue to be strong, and if core inflation and inflation expectations do not deteriorate, and if data on business activity do not fall further, we are likely to make the change to Q3 in the near term. 
  
  
• Alternatively, if the outlook for the economy and/or inflation deteriorates we would still be comfortable with a Q4 call. For now we stick to Q4.