Federal Reserve preview - Scotia says 25bp is expected and the "tail risks are low"

Coming up on Wednesday, 1 February 2023 is the Federal Open Market Committee (FOMC) statement at 2pm US ET, followed a half hour later by Chair Powell's news conference.

Earlier previews are here:

• Goldman Sachs on "the key question" for the Federal Open Market Committee (FOMC) meeting

• FOMC to hike 25 bps on Wed and Powell to stick to 5.1% peak - Barclays

• BoA on the FOMC, +25bp & guidance of more to come. BoA forecast EUR/USD lower.

• Goldman Sachs Fed view: balance of risks toward further tightening, not cuts later in 2023

• Fed to hike 25bps; the bar is high to flip the status quo for USD - TD

• WSJ's Timiraos says Federal Reserve officials uneasy that inflation could re accelerate

• Goldman Sachs doesn't want to fight the Fed

• Another week of central bank bonanza coming up

• What's priced in for the central bank meetings

This, in brief, from Scoita on what they expect, in line with basically everyone else:

• There will be no updated Summary of Economic Projections or its dot plot offered at this meeting with the next chance at updating all of that arriving on March 22nd.
• A 25bps rate hike is widely expected among economists and fed funds futures are priced for it.
• Tail risks are low.
• There has been no signal offered by FOMC officials that they are open to a pause, nor has there been guidance toward a bigger 50bps move which would be the slightly fatter tail risk. Still, this notion that the Fed could or might raise 50bps ... is off base.
• Several Fed speakers have already leaned toward 25. The Fed has gone out of its way not to surprise with administered rate changes on game day and reserved more of the right to surprise markets on the bias.
• 25 it is.

More interestingly:

• But I think Powell may repeat his line about how the dots may shift higher again in March and continued rate increases are required. At 4.75% the Committee will still be below the 5.25% terminal rate in December's dots. Most of the new information since then has been more positive or at least less negative (China, Europe, financial conditions, etc). If Chair Powell and the broader Committee wish to signal a bias shift then the next most likely candidates for this would be Powell’s next semi-annual testimony before Congress in late February or early March (date tbd), or the March FOMC meeting with fresh forecasts.