The bottom line is that no change is expected tonight in terms of interest rates or bond tapering. However, the interesting part of tonight will be on the economic and inflation forecasts along with the interest rate projections. Here is what a survey of51 economists expect who were surveyed between June 04-June 10.

Bloomberg Economists

• Greater than half of the economists surveyed expect the Fed’s ‘dot plot’ to show an earlier lift off for rates in 2023.
• 2 out of 5 (40%) expect the Fed to take its first step in tapering monthly bond purchases in August at the Jackson Hole Symposium (August 26-28).
• One third expect a tapering announcement in September and another third say December

Labour targets?

The Economists surveyed expect the Fed to be generally upbeat about the robust economic rebound this year. However, bond tapering is expected when unemployment is around 5% and inflation is at 3% as measured by the personal consumption expenditure price index. The April core PCE deflator reading came in at 3.1% y/y, the highest since 1992, but unemployment is still too high. There have been two main reasons that labour supply is weak. Firstly,

• Lack of child care issues and home-schooling which means some parents had to stay at home
• Extended unemployment benefits means the urgency to return to work has been reduced. These benefits are set to continue until September

Risk of overheating

Higher inflation numbers have shifted the risks to the economic outlook with 65% of those surveyed seeing a risk of the US economy overheating due to an accelerating US vaccination program and fiscal stimulus set to rise with Joe Biden’s infrastructure and jobs plan.

The takeaway

The USD is trying to bottom and the Fed should signal a slightly better picture. The obvious USD buy trade would be if bond tapering is announced or a timescale hinted at. A shift in the dot plot will also likely help lift the USD too. Risk looks asymmetric for USD strength and the USDCAD pair looks due for some retracement. Let’s see what we get. If the Fed remain dovish then more USDZAR looks compelling.

Industrial Production y/y

• expected 9.2%, prior was 9.8%
• Foreign demand (for exports) remains strong, and domestic demand is improving

Industrial Production YTD y/y

• expected 26.3%, prior was 29.6%

Fixed Assets (excluding rural) YTD y/y

• expected 17.0%, prior was 19.9%

Retail Sales y/y,

• expected 14.0%, prior was 17.7%
• supported by holiday spending over the Labour Day holiday – consumer spending improving in China.

Retail Sales YTD y/y

• expected 26.3%, prior was29.6 %