VIEW: TD Securities Lower Terminal Rate Call

TD Securities write “we move down our Fed funds terminal rate range from 5.50%-5.75% at the July meeting to 5.25%-5.50% at the June meeting. We now project two more 25bp rate hikes at the May and June meetings. The Fed's messaging suggests an end to the hiking cycle in May, but also not a lot of commitment either. Essentially, the Fed does not know how much of the current financial market turmoil will persist and impact growth going forward. Assuming that market stress simmers along, we think strength in upcoming inflation and labor market data will push the Fed towards one more hike beyond May towards a 5.50% peak in June, recognizing that this decision includes a certain degree of uncertainty. We maintain the start of rate cuts at the December FOMC meeting.”