Morgan Stanley: “Bond markets will harshly react if the Fed mentions rising rates”

The next Fed meeting is to be held on June 17 and 18 . Morgan Stanley expects the US central bank to highlight the macro figures improvement after 1Q transition, its downgrade in GDP growth forecast, upgrade in inflation path, downgrade in unemployment rhytym and a lower range for interest rates in the long term.

Analysts do not think there will be a debate about risk trend’s changing nor lowering interest rates in 2014/2015. If Janet Yellen answers in the press conference similarly to the previous one, when she said rates could rise in 6 months, bond markets would harshly react.

What about the bank’s feedback if GDP and unemployment forecasts drop and inflation prospects get higher?

According to JP Morgan, the chart where the members write their expected rates is likely to see slight rises, but possibly lower than 25 bp, and 10 bp for long term forecasts. Analysts believe the organism will state unemployment “remains elevated” as they do since 2011 (the day they change it, it will be a big issue). Most probably, a $10bn monthly tapering will be maintained, but there’s a clear chance of an increase.

JP Morgan expects forward guidance policy to continue as “a highly accommodative stance of policy remains appropriate.”