The Federal Reserve is set to leave its policies unchanged but may lay down hints that it would begin tapering bond-buying later in the year. The US economy is booming and signs of rising inflation have been popping up. On the other hand, millions of Americans remain out of work.
Ahead of the Fed decision, US 10-year Treasuries have risen back to 1.64%, carrying the dollar higher with them. EUR/USD is pressured around 1.2070 and USD/JPY is rising toward 109. Gold has retreated from the highs, changing hands at below $1,770.
Here you can find the forecasts by the economists and researchers of 12 major banks regarding the upcoming central bank’s decision.
“We expect the Fed to keep monetary policy and policy signals unchanged. It is one of the interim meetings without updated forecasts and dots. The Fed is outcome-based and not forecast-based and will not change rhetoric until they see the strong economic data. Based on our very positive US macro outlook, we continue to see the Fed moving in a more hawkish direction later this year. It may happen already in June or July but more likely in September. We continue to expect actual tapering will start in January 2022. We expect the first rate hike in H1 2023. Risk is tilted towards a more hawkish Fed (faster tapering pace and the first-rate hike in 2022). The April FOMC is not expected to have any significant impact on the US bond market. We have a 2.0% six months target for 10Y UST yields. We do not expect the Fed meeting will have a significant impact on EUR/USD. With EUR/USD at 1.20 and our strategic view on real dollar yields, we see the surprise potential as being pro-US, towards a hawkish Fed and stronger USD in 2021.”
“The meeting concluding on Wednesday is unlikely to bring any major policy changes and won’t be accompanied by new economic projections. We expect the statement to strike a more optimistic tone on the economic outlook, but Chair Jerome Powell is likely to emphasise in his press conference that any changes to the stance of policy are still some way off.”
“We expect the Federal Reserve to leave monetary policy unchanged – rates remaining in the 0-0.25% range and quantitative easing monthly asset purchases maintained at $120 B – and policymakers will re-affirm there will be no shift in stance until ‘substantial further progress’ on the recovery has been made. We also expect the usual script from Fed Chair Jerome Powell speaking of his cautious optimism on the recovery in the press conference while downplaying any talk of meaningful medium-term inflation pressures. He will then serve up the (usual and obvious) comment that the unemployment rate overstates the improvement in the jobs market given steep falls in worker participation. Assuming the Fed makes few, if any, substantive changes to its statement, we would expect the dollar to stay on a softening path.”
“We don’t expect any substantive new signal yet on tapering – or tightening – even as the tone on the economy is more positive than in March. We expect the signaling to evolve over time as the recovery proceeds, and we just changed our forecast for the start of tapering to March 2022 from September 2022, but we expect officials will be reluctant to say anything that could be construed as a tapering countdown signal until much later this year.”
“The meeting should be a relatively quiet affair after the March decision provided us with a fresh Summary of Economic Projections and dot plot. While solid progress has been made in the labour market over recent months, it’s unlikely to change the ultra-dovish and patient Fed stance, at least for now. Moreover, Powell and company have made clear they’ll be looking past above-2% readings of inflation given that, in the Fed’s view, they’re largely driven by base-year effects and transitory factors. Also, its flexible average inflation targeting framework entails that it needs to make up for past inflation undershoots going forward. Given its demonstrated outcome-based approach to policy, we’ll likely need to see at least a couple more months of very strong job growth before a change in policy (i.e. a taper of QE) is signaled.”
“The Fed is unlikely to rock the tapering boat. We expect a small technical hike (5 bps) to the IOER to prepare for the continued influx of USD liquidity during May, but we don’t expect markets to be fully able to shrug this off as a purely technical adjustment, why risks are tilted in a hawkish direction for Wednesday. Expectations for any change in signals regarding the balance sheet policy are 100% muted, why Powell will struggle to surprise on the dovish side of expectations.”
“Despite a highly reflationary economy, the Fed is expected to remain patient on policy leaving its guidance on policy unchanged. Fed officials regard the pickup in inflation as temporary and its goal of maximum employment far away. We don’t expect Fed Chair Powell to deviate from his recent script that rate hikes are a long way off and talk of taper is too soon. The FOMC may consider a 5bp hike in the IOER to counter mounting downward pressure on its policy rates from growing Bank Reserves.”
“This meeting should largely serve as a status check of the economic recovery relative to the substantial forecast upgrades that the FOMC unveiled at their March meeting. And in the press conference, we expect Powell will likely continue his subtle shift in tone in a more optimistic direction. Nevertheless, given the remaining gaps in the labour market and the focus on seeing actual rather than forecasted progress, April is too soon for the return of taper talk, and they expect those discussions to heat up during the summer instead.”
“The FOMC won’t change rates or alter its language much in the official statement, given that it won’t have a new forecast. But we’ll listen to Powell carefully for any reassurance, subtle though it will be, that if inflation doesn’t stay as muted next year as the Fed’s last projection, it’s willing to act earlier on rates.”
“There is a small probability the committee gives more decisive guidance toward tapering of asset purchases. However, the much more likely scenario is the statement will be tweaked to reflect a cautiously more optimistic outlook and Chair Powell will await more evidence that robust rehiring is continuing. More formal guidance ‘well ahead’ of tapering may emerge at or before the June FOMC meeting when officials will have had two more monthly jobs reports to assess the pace of rehiring.”
” We and markets expect no change to policy or to the forward guidance on asset purchases and rates. The most likely change will be an upgrade to the assessment of the recovery, which since the last meeting has gained further momentum. We do not expect any major shifts to Fed communication until late Q3 as a base case when we might see some kind of hint at a tapering of asset purchases – something we expect to start in early 2022. On this, the Fed has promised to be more transparent and to telegraph such changes well in advance. Given this, we expect Chair Powell to continue to defend the dovish stance of the Fed in Wednesday’s press conference, where he is likely to receive further questions on the risk of overheating and an inflationary surge. In response, Powell is likely to reiterate that the risk of such a scenario is low in the near-term, given that this did not occur even with very tight labour market conditions at the end of the last cycle. With bond yields having recently stabilised after a sustained rise in Q1, the market impact of this month’s FOMC meeting is likely to be limited.”
“The Fed is willing to look past transient inflation impact and not react pre-emptively (AIT) and will supply clear communication well in advance of any bond-buying taper. We expect no policy changes in this meeting and the Fed’s taper discussion will likely only start in late 2021/early 2022. Policy rate will stay at 0-0.25% till 2023.”
