Move would be taken dovishly
MUFG Research discusses its expectations for this week's FOMC policy meeting on Wednesday, May 1st.
"On Wednesday, the FOMC will announce its monetary policy decision and will certainly leave the range of the federal funds target unchanged at 2.25-2.50%. However, there is a chance the FOMC could cut the IOER level from the current 2.40%. This is supposed to act as a ceiling for the federal funds rate but has drifted above the IOER recently, trading at 2.44% last week. A 5bp cut would help bring the effective rate lower. While technical in nature, the decision at a meeting when not a lot else will happen could be taken dovishly by the markets," MUFG notes.
"The Fed however, may take the view that this spike above IOER is temporary and will not act after only a short period of the fed funds rate trading above the IOER. Whether this technical move takes place or not, the key for rate direction will of course be the incoming economic data and in that sense the non-farm payrolls data on Friday will be key," MUFG adds.
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