Archives of “federal open market committee” tag

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Ex-Fed New York President Dudley says the Fed is fighting the last war on inflation

  
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Says excess dovishness at the Federal Open Market Committee increases the risk of a major policy error at the Fed.

Bill Dudley is a past resident of the Federal Reserve Bank of New York (2009 to 2018) and is now at Princeton University’s Center for Economic Policy Studies.
Says Fed officials:
  • anticipate that inflation will fall back close to 2% in 2022 … even as supply chain disruptions, energy costs and rising rents threaten to make the current price surge bigger and longer lasting than expected. 
  • And they expect inflation to keep decelerating in 2023 and 2024
  • if inflation proves more persistent than anticipated and even accelerates as the economy pushes beyond full employment, they’ll have to tighten much more aggressively than they expect. 
  • The result could more resemble what happened from 2004 to 2006 – when the Fed raised its short-term interest-rate target by 4.25 percentage points, to 5.25% from 1%, with quarter-percentage-point increases in 17 consecutive policy-making meetings – than what they currently have pencilled in. 
Here is the link to the Bloomberg piece (may be gated)  for much more.
Dudley, Yellen and Fischer, all since departed from the Fed:
Says excess dovishness at the Federal Open Market Committee increases the risk of a major policy error at the Fed. 

The full statement from the July 2021 FOMC meeting

  
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FOMC statement from the July 28, 2021 meeting

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer‑term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.

Implementation Note issued July 28, 2021

Federal Reserve FOMC minutes (June meeting) are published Wednesday 7 July 2021

  
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Minutes to the June 15-16 meeting are due at 1800 GMT.

At the meeting (in a very brief summary)
  • members moved forward expectations for rate hikes
  • talked about tapering asset purchasing
The minutes will be scoured for further indications around timing of tapering QE, also risks to the economic outlook that may delay tapering (and on the flip side, what may shift it forward).
The buying of USTs (lower yields) may be indicative that the bond market is seeing risks of having hit ‘peak growth’, or that inflation is indeed transitory (these are two possibilities for the bond market bid amongst countless other explanations out there). Perhaps the minutes will shed more light on what the Federal Open Market Committee is thinking.

FOMC – Powell will err on the side of removing accommodation too slowly rather than too quickly #AnirudhSethi

  
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The Federal Open Market Committee statement and Powell’s press conference on Wednesday US time were both non-eventful.

Responses are coming in, this a quick summary on what Oxford Economics have to say:
Powell signalled the FOMC would rather risk erring on the side of removing accommodation too slowly then removing it too rapidly, for several reasons:
  • heightened uncertainty around the pandemic remains
  • the economy and labour market are far from full recovery
  • new policy framework is asymmetrically dovish
  • policymakers want to avoid ‘taper tantrum’ that would send long-term rates higher

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Oxford Economics forecast is for a ‘gradual’ QE taper to being in 2022. but by the end of that year, the Fed’s open market account will remain very elevated.
The Federal Open Market Committee statement and Powell's press conference on Wednesday US time were both non-eventful.

FOMC responses coming in – “no surprises” #AnirudhSethi

  
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A summary of the main point Lloyds make about Wednesday’s Federal Open Market Committee

  • policy update contained no surprises.
  • left interest rates and its asset purchase target unchanged
  •  The Fed continues to promise that it stands ready to offer more support to the economy if warranted but there seems to be growing confidence that more action may not be needed. Nevertheless. any tightenng in monetary policy is still probably a very long way away and markets don’t expect an interest rate hike until 2024. 
More:
  • Recent US economic data has actually been mixed
  • the signs are that the vaccine rollout is increasing the Fed’s confidence that economic conditions will improve significantly later this year
  • Hopes of further fiscal stimulus from the Biden Administration probably have provided a further boost
On the ‘tapering’ of QE question, which some officials at the Fed have indicated may commence in 2021, Lloyds remind that Powell has been quick to “stamp on this idea” and reiterated the point again at his presser.
A summary of the main point Lloyds make about Wednesday's Federal Open Market Committee 

The FOMC statement from the September 2020

  
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The full statement from the FOMC September 2020 meeting

The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Overall financial conditions have improved in recent months, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. (more…)

US dollar catches an early bid on Fed day

  
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USD/JPY pops

Short-term speculators are no-doubt short the US dollar so some position squaring early today into the FOMC decision make sense. We’re also closing in on month-end so flow driven trades are going to be a factor.
The Fed decision is at 1800 GMT with Powell 30 minutes later. I’ll be looking for commentary on the economy as the top market mover. If it’s negative, the Fed will have to offer more strong hints at easing to keep the equity babies bulls at bay.
Other economic data today is a mish-mash of second tier data including:
  • US trade balance (advance goods)
  • Wholesale inventories
  • Pending home sales
  • Weekly oil inventories.

Powell set to speak to Congress

  
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Powell will deliver part 1 of Humphrey Hawkins in the Senate

Powell will deliver part 1 of Humphrey Hawkins in the Senate
The Fed tends to be a punching bag when the economy is in bad shape or when they try something new. If I were a politician, I would certainly be trying to score points on a central bank buying junk bonds and calling a program delivering loans up to $300m as ‘Main Street’ lending.
But I don’t think the market cares. Powell has all the canned answers ready, saying that inflation is low and that the aim is to lower employment.
The criticism of the Fed chair last week was that he was too downcast. Perhaps he will try to correct that but I don’t think it’s warranted. The most-important thing for the market is that he reiterates that the FOMC will “act forcefully, proactively and aggressively.” I don’t see that changing.
One area that is a bit of a minefield is unwinding all the March programs. For instance, the stated goal of the corporate bond buying program is to restore market functioning and it’s set to expire in September. They’ve already achieved the goal — spreads are narrow. Will he start to move the goalposts?
The headlines will be out at the top of the hour and the Q&A will start 20-30 mins later.

Federal Reserve to buy Treasuries and MBS ‘at least at the current pace’

  
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Highlights of the June 10, 2020 FOMC interest rate decision

  • Will increase holdings of bonds ‘over the coming months’ at least at the current pace to smooth markets
  • Buying will continue across curve
  • Dots pin rates at zero through 2022 but two dots show lift-off in 2022
  • Rates unchanged, as expected
  • Repeats pledge to use full range of tools to support US economy
  • Repeats that health crisis will weigh heavily on activity and poses considerable risks to the outlook over medium-term
  • Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
  • Prior statement
  • Powell will hold a press conference at the bottom of the hour
The Fed has tapered to $4B/day from a high of $300B/day and there was some expectations they would continue to taper but they are going to keep QE here, which is around $80B per month.
I don’t see anything negative for the market here. The dots are zeroed out and the Fed is going to keep the printer running.
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