FED

In the World, World economy 25th January 2021

FED: Upward Surprise To December’s Projections But Powell To Throw Cold Water Over Taper Talk

Attention will be particularly centred on the discussion of QE tapering. Previous comments by regional Fed members Bostic and Kaplan stoked markets into pricing in the possibility of bond market support fading by year-end. When combined with news of an additional $1.9trn fiscal stimulus package being floated in Washington, this resulted in rising 10-year yields, which has been one driver of the USD rebound witnessed at the beginning of this year. A quicker vaccination campaign being rolled out since December has also added to a brighter economic outlook, bringing the discussion of policy normalisation to the table.

In the World, World economy 17th September 2020

The Fed Officially Adopts A Flexible Inflation Target; Interest Rates Close To 0% Until 2023

Link Securities | After the publication of the Fed’s meeting’s statement and the intervention of Jerome Powell, the central bank’s “performance” did not end up pleasing everyone. It adhered to the script. The Fed confirmed that the majority of its members do not expect increases in official interest rates until the end of 2023. They also reiterated that they will allow inflation to stay above 2% for a while, until the objective of reducing the jobless rate to pre-pandemic levels is achieved.

In the World, World economy 15th September 2020

FED: Subtle To The Point Of Evanescence

The new strategy plays on the asymmetry of monetary policy: it is easier to let inflation accelerate in good times – which only entails not acting (keeping rates unchanged) – than propping it up in bad times, because at some point the latter would require ever more action which would collide with the zero bound limit to policy rates.

World economy 14th September 2020

This Week’s Fed Meeting May See A Third Major Change To Its Dollar Strategy

Monex Europe | Recent meeting minutes and speeches have made it clear the FOMC is considering a range of possible calendar and outcome-based forward guidance. The likeliest outcome is further formalisation of the Fed’s shift away from viewing maximum employment as a constraint that will lead to rate hikes. Powell’s speech may provide a template for what outcome based guidance could look like.

In the World, World economy 28th August 2020

Fed Monetary Policy Review – No FAIT But What We Make

David Page, Head of Macro Research at AXA Investment Managers | Federal Reserve Chair Powell delivered the first shared address to a (virtual) Jackson Hole Monetary Conference. He delivered the conclusions of the Fed’s Monetary Policy Review, a process that was started in early 2019, and was due to be announced earlier this year, before the pandemic delayed the release. The Review maintained the broad pillars of Fed policy making: a dual mandate with employment and price stability goals, with price stability defined as 2% over the long term. However, it made three changes…

In the World, World economy 26th August 2020

The Real Challenge Facing The Fed

Mobeen Tahir, Associate Director, Research, WisdomTree | The biggest challenge facing the Fed in the coming months (and years) is to sketch a roadmap for closing the floodgates of liquidity. At this point in time, it might seem like a ‘nice problem to have’. But given long and variable lags between policy implementation and impact on economy, these are issues the Fed needs to be thinking about now. While the Fed’s mandate is to promote maximum employment and ensure price stability, markets have become highly dependent on central bank accommodation as a propellant. As unemployment (currently 10.2% in the US) decreases and inflation (US Core Personal Consumption Expenditure Index inflation is currently 0.9%) rises closer to the Fed’s desired target level of 2%, the central bank will need to tighten policy.

World economy 11th June 2020

The Fed And The OECD Have Doubts About The V-Shaped Recovery Discounted By The Markets

Santander Corporate & Investment | The Fed does not expect the economy to fully recover until 2022 and expects GDP to fall by 6.5% and unemployment of 9.3% in 2020. The OECD also distances itself from V-shaped scenarios and warns of the worst peacetime recession in 100 years. In scenarios without second waves of Covid-19, the OECD anticipates a global contraction of 11.5% in H1’20 and neither does it expect world GDP to approach the pre-coronavirus level by end-2021.

World economy 13th May 2020

The Fed would prefer not to discuss going negative

David Lafferty (Natixis) | Central banks have pinned the front end to zero – or lower – but real rates and inflation premiums have some room to rise into the recovery phase – as slow as it may be. Yields will also see some upward pressure when the Fed and other central banks eventually begin to slow QE purchases. At this point, the Fed would prefer not to discuss going negative as the overnight market recently priced. Another sell-off or prolonged shutdown might put negative rates on the table, but we’re not there yet.

Markets, World economy 5th May 2020

US Corporate Bonds: New York FED To Start Purchases “In Early May”

Markus Allenspach, Head Fixed Income Research, Julius Baer | At this stage, the corporate bond market needs support from the Federal Reserve to digest the negative news flow, such as the net tightening of lending standards for commercial and industrial loans in the senior loan officers’ survey published yesterday or the numerous cyclical data showing the depth of the contraction in the current quarter.

Markets, World economy 10th April 2020

The Federal Reserve Ventures Into Unchartered Territory

J.P.Marín Arrese | Jerome Powell raises the stakes day by day by making bolder than ever decisions. He shatters the image of shyness, prudence and circumspection he offered when taking over the Fed chairmanship. His last daring move has left markets flabbergasted. No wonder. He has pledged 2.3 trillion to buy ungraded bonds and to set up a massive lending facility for Main Street companies, thus breaking the golden rule of including only high-rated paper in the Fed balance sheet.

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