Fed Chairwoman Janet Yellen may sound hawkish to sensitive market ears at her press conference on Wednesday because she is likely to make the case that the U.S. central bank can still raise rates twice this year even with the weak May employment report, analysts said.
“Yellen presents the views of the whole [Fed] policy committee and the whole committee wants to retain the optionality of two rate hikes” in 2016, said Omair Sharif, senior U.S. economist at Societe Generale.
Like she did earlier this month in the immediate aftermath of the May payroll report, Yellen will stress the positive, saying that it still looks like there will be a rebound in second-quarter GDP growth
This optimism might sound hawkish to a market that is looking for a caution tone from the central bank chief, Sharif said.
In recent days, market odds of a Fed rate hike in July have plummeted to 15% from as high as 55% prior to the jobs report.
At the end of two days of talks on Tuesday and Wednesday, the Fed will release a statement and fresh economic forecasts at 2 p.m. followed by a Yellen press conference at 2:30 p.m.
Economists will be watching closely to see how many Fed officials expect two rate hikes this year. In March, nine of the 17 policy makers were in that camp.
See: ‘Dot plot’ to be best gauge of Fed’s mood after the jobs debacle
Sharif said Yellen won’t “make a conscious effort” to get expectations for a July rate hike back to 60%.
“She is taking a longer term view. There is no need to tackle July,” he said.
Yellen will say: “we’re taking a deep breath and see if we can squeeze in two rate hikes this year,” he said.
This alone should cause expectations for a July hike to rise somewhat, he said.
Thomas Simons, money-market economist at Jefferies, said Yellen’s “message will be that the [Fed policy] committee will raise rates opportunistically.”
He said it wasn’t “impossible” for the Fed to hike rates in July but several events would have to break just right.
If the June employment report in strong, the Brexit referendum uncertainty has ebbed and markets are relatively strong “they’d take their shot,” he said
Jefferies has penciled in a move in September, he said.
In an interview with MarketWatch, Adair Turner, a former top financial regulator in the U.K. and an advocate for more creative stimulus from global central banks, thinks the Fed may find it difficult to hike more than once this year.
Read: Helicopter money champion says Fed will struggle to lift interest rates
Michael Feroli, economist at J.P. Morgan Chase, said Yellen will stress uncertainty at her press conference but remain open to the possibility that the clouds would lift by the end of next month.
The Fed will meet on July 26 and 27 to determine interest rates. The Brexit referendum will be over and the June employment report may resolve some uncertainties, he said.
“But I don’t think she’ll push back in a strong way” on the market’s low expectations for a July hike, he said, even though J.P. Morgan is sticking with a forecast of two rate hikes this year in July and December.
“We don’t have a lot of confidence” in that forecast, he said.