FOMC preview from the Bank of America Merrill Lynch
Economists at the Bank of America Merrill Lynch don't see any scope for a move in rates but believe the statement on Wednesday from the FOMC will make a move to the sidelines official.
"We expect the FOMC to slightly downgrade its assessment of overall economic activity from "strong" to "solid", reflecting signs of softening in the available data and gradual downgrades in assessments within the minutes in November and December. The FOMC's shift to a more patient tone is somewhat at odds with forward guidance language in December's statement, and we expect the committee to soften this language somewhat to relieve this tension. Finally, we anticipate that the FOMC to update its 2014 policy normalization principles and plans to acknowledge its commitment to a long-run operating framework that features elevated reserve balances plus an additional buffer to forestall overnight rate volatility, using reverse repos and IOER to manage the lower end of the target range, and a treasury-only portfolio."
Earlier, Morgan Stanley warned that a shift to a larger balance sheet could weigh on the US dollar.
