Archives of “federal open market committee” tag

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FOMC-day is usually a good one for risk assets

  
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The FOMC day effect on the stock maret

The Fed put is real.
US equity futures have turned slight higher now and that aligns them with a dovish trade that’s clear in the dollar, rates and gold.
Historically, that’s a good bet.
Study after study shows that Fed day is one of the best ones for stock markets of the year. Back in 2016, Bespoke Investment Group tallied that since 1995 the average return of the S&P 500 on FOMC day is +0.34% compared to +0.03% on the average day otherwise.
The FOMC day effect on the stock maret
Longer-term studies show the same effect (and here).
Could today be the day that Powell takes away the punchbowl? It’s certainly possible but all these studies show that the jitters are always high and the reality is generally positive.

Full statement from the FOMC April 2020 decision

  
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FOMC statement from April 2020

Below is the full statement from the April 2020 FOMC rate decision

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 coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Morgan Stanley expects FOMC to cut 75bps(50 on March 18, 25 in April)

  
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Morgan Stanley has slashed their US 2020 GDP growth forecast to 1.5%

  • from 1.8% previously

Projections for the Fed:

  • 50 bps rate cut in March
  • 25bps in April

MS add that if recession:

  • Fed to cut to zero
  • & restart QE
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PS. I am seeing (again) the ‘central bank rate cut is ineffective therefore they won’t and we need fiscal stimulus instead’ comments.
This is, unfortunately, a very common mistake that is made.
I posted this ahead of the RBA meeting last week (before the RBA cut its cash rate) , just change around the names:
  • Some folks will argue rate cuts will be ineffective against the virus, which is the wrong argument, of course rate cuts won’t cure a virus! Sheesh. The central bank move, if it comes,  will be predicated on taking action to avert too much economic harm. Some folks will argue that a rate cut will be ineffective for this, that government stimulus (fiscal) would be better, and they have a fair point … but you have to remember a rate cut is the tool available to the central bank, they can’t provide fiscal stimulus. “The RBA should stand firm and force the government to act” is another argument. Unfortunately this is no time for dick swinging contests (its a male-dominated sphere) and the RBA will not play this game.

FOMC minutes: Current policy stance to ‘remain appropriate for a time’

  
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Highlights of the Jan 28-29, 2020  FOMC meeting minutes:

  • Conditions expected in Q2 for T-bill tapering
  • Saw risks to economic activity as ‘somewhat more favorable’ than at previous meeting
  • Expected economic growth to continue at a ‘moderate pace’
  • Cited easing of trade tensions, receding risks from Brexit and stabilizing global growth as reducing downside risks
  • Generally expected trade uncertainty to remain somewhat elevated
  • Agreed threat from virus ‘warranted close watching’
  • Once reserves reach ample levels, regular open market operations will be required over time to accommodate trend growth in Fed’s liabilities and maintain ample reserves
There has been little market reaction to the headlines.
We have heard all these messages before from Powell and other Fed members. It’s a rare moment when the message is very much united and consistent. The market continues to doubt there will be a long period of watching with a 78% chance of a cut priced in at the July meeting.

Federal Reserve FOMC January meeting minutes this week – preview

  
Analysis, Economy
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The minutes of the Federal Open Market Committee meeting will be published on Wednesday 19 February 2020  at 1900GMT

A couple of snippets on what to expect and look out for, via Scotia.
  • Watch for frequency of citation references to how the committee views downside risks to the outlook
  • Recent references to downside risks have fanned market pricing for easing
  •  (chart 2). During the press conference on January 29th, Powell guided that there had been a Further clues regarding expectations for the mid-year announcement of the strategic review are possible
  • watch for further discussion of the merits of average inflation targeting around a 2% goal
  • balance sheet policy guidance … we might develop a further understanding of the range of FOMC opinions
  • coronavirus and its potential impact. Watch for any further discussion and the range of views on the implications for world and domestic growth and inflation. 
The minutes of the Federal Open Market Committee meeting will be published on Wednesday 19 February 2020  at 1900GMT

FOMC statement for January 2020

  
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The full FOMC statement for January 2020

Information received since the Federal Open Market Committee met in December indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a moderate pace, business fixed investment and exports remain weak. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1‑1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

Implementation Note issued January 29, 2020

Pres. Trump: Fed should get smart and lower the rate to make US rates competitive

  
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The FOMC decision is set for tomorrow at 2 PM ET

As the FOMC today meeting gets underway today, with the decision due at 2 PM ET/1900 GMT tomorrow, Pres. Trump is adding his two cents into the discussion.

He says:
  • The Fed should get smart and lower the rate to make our interest competitive with other countries
  • If Fed lowers interest rates, we would then focus on paying off and refinancing the US debt
Of course the Fed only controls the shorter-term interest rates. Longer term interest rates have the shorter-term interest rates as a function, but it is not the end all be all for the shape of the yield curve. In fact, rates could increase further out the curve and increase treasury borrowing obligations.

BOJ announce no change to monetary policy settings, as expected

  
Analysis, Economy
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Bank of Japan monetary policy meeting for January 2020 has concluded

As expected, policy unchanged:
  • keeps monetary policy steady
  • maintains short-term interest rate target at -0.1%
  • maintains 10-year JGB yield target around 0%
  • maintains forward guidance on interest rates, says they will remain at current or lower levels for as long as needed to guard against risk momentum for hitting price goal may be lost
I’ll have more on this separately

The full FOMC statement for December 2019

  
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The FOMC Statement for December 2019

Information received since the Federal Open Market Committee met in October indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12‑month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1‑1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.

Implementation Note issued December 11, 2019

  
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Highlights of the FOMC decision on December 11, 2019:

  • At the prior decision on October 30, the Fed cut rates 25 bps
  • The market has priced in virtually no chance of rate move through February
  • IOER 1.55% vs 1.55% prior
  • Fed drops language about ‘uncertainties about this outlook remain’
  • Vote was unanimous
  • “The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate”
  • No changes in the economic outlook paragraph
  • Says “the current stance of monetary policy is appropriate”
  • Leaves forecasts for GDP and inflation unchanged, lowers unemployment
  • Median forecast is for one rate hike in 2021 and one in 2022

Dropping the language about uncertainties is moderately hawkish. However the market is basically unmoved in the aftermath. The Fed is clearly signaling that it’s on the sidelines here.

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