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Wrightson ICAP Preview: Prospects Of A Tweak

FED

Wrightson ICAP's focus at April's FOMC is on the possibility of an administered rate tweak, but they say the possibility "has faded considerably over the past week" as effective fed funds has been entrenched at 0.07%.

  • They write "they would be very surprised if the next adjustment were larger than 0.02% or (at most) 0.03%", citing the need to communicate to the market that any adjustment is not a change in policy.
  • They see both the ON RRP and IOER rates rising in tandem, despite some arguing for increasing the RRP rate by itself and leaving IOER at 0.10% (i.e. the RRP "floor" is more dependable than the "gravitational pull" of the IOER").
  • The Fed will probably wait until EFFR falls to 0.06% before acting at an FOMC meeting, and 0.05% to prompt an inter-meeting tweak (and/or if negative bill and repo rates become more prevalent).
  • "Our guess– and it really is no more than a guess – is that we will see some additional downward pressure on unsecured rates as we move into the first half of May."
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