BofA: We look to fade any hawkish knee-jerk FOM reactions

BofA advises against reacting to any initial hawkish market responses following the September FOMC meeting. They anticipate a 25bps rate cut and expect the Fed’s dot plot to exceed market expectations, but expect Powell’s tone to remain dovish.

Key Points:

1. Market Uncertainty:

   • High Uncertainty: The market is highly uncertain about the September FOMC meeting, reflecting varied expectations.

2. Rate Cut and Dot Plot Expectations:

   • Anticipated Cut: BofA expects the FOMC to announce a 25bps rate cut.
   • Dot Plot: They predict the Fed’s dot plot will be above market expectations, potentially signaling a more cautious approach to future rate cuts.

3. Powell’s Likely Tone:

   • Dovish Outlook: BofA expects Fed Chair Powell to adopt a dovish tone, emphasizing downside risks to the labor market and expressing willingness to accelerate rate cuts if necessary.

Conclusion:

BofA suggests that any initial hawkish reaction to the September FOMC should be faded. They anticipate that Powell’s statements will lead to a market interpretation of the FOMC as delivering a neutral to dovish cut, despite any initial market movements.

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This article was written by Adam Button at www.forexlive.com.