Mizuho Sees Fed Surprising With A 50bp Hike

Mizuho writes that given recent developments ahead of Wednesday's Fed rate decision, "it is clear that our 50 basis point call will now be a surprise to the market". They also see the FOMC guiding to another 50bp hike in July "before reassessing its rate hike path".

• They argue that in March, "the market had been expecting that the FOMC would hike rates by 25 basis points; but heading in to the policy meeting the market had bumped up the rate hike call to 50 basis points on disappointing economic data. Because the markets were priced for 50 basis points headed in to the meeting, there was a general market perception that the FOMC would take the free 50 basis point option being offered. Instead, the Committee opted to hike rates by 25 basis points, and we expect a similar development at the conclusion of the committee’s current deliberations."
• In contrast to some analysts regarding a 75bp hike as credibility-enhancing, Mizuho writes that it "would damage the Fed’s credibility and suggest that the Committee has panicked, increasing market volatility at a time when investors are already skittish setting up a possible illiquidity event."