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Nomura Sees Big Risk FOMC Raises Longer-Run Rate Dot Next Month (2/2)


Nomura however writes that the FOMC may well shift up its median longer-run Fed funds rate in the September meeting's Summary of Economic Projections.

  • "Considering the US economy continued to surprise to the upside, we see a significant risk that the median longer-run dot rises to 2.75% at the September FOMC meeting" from the 2.50% it first dropped to in 2019.
  • This would potentially have significant market consequences. For one thing: "a higher degree of uncertainty around where R* could slow the pace of rate cuts in 2024" and "less conviction in a brisk pace of insurance cuts could also be reflected in the medium-term rate projections as soon as the upcoming September meeting."
  • They point to the fact that the longer-run dot has been drifting higher with some FOMC participants raising their projections in June.
  • Nomura: "after several years of unprecedented macro shocks, Fed officials are likely especially open-minded to the possibility of regime shifts in growth, inflation, and interest rates."

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