By: Tiffany Wilding, Managing Director, Economist

The U.S. Federal Reserve releases a new statement at 2pm EST on Wednesday. We’re looking for a 25 basis point (bp) hike in the benchmark interest rate while at the same time the Fed signaling a pause in additional rate hikes if data permits.

We think the Fed can most likely do this by changing the forward guidance from “some additional policy firming” to something like “additional policy firming”, which would allow them to signal a pause while still maintaining a bias towards tightening. We think Chair Powell is going to have a challenging balancing act during the press conference, but we ultimately expect this to sound like a “hawkish pause”.

The full effect of spillovers from banking sector stress are uncertain, while inflation and wages have appeared stubborn since the March Federal Open Market Committee (FOMC) meeting. This has resulted in a committee that is more divided on the Fed’s next move than they have been in several quarters. We think setting up a pause to allow time to assess the impact but that is both conditional on incoming data and retains a bias towards the next move being up is therefore the most likely compromise.