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The signs are that the Federal Reserve is ready to shed its cloak of patience. The hawks are plumping up their feathers and are preparing to make their move.
There was nothing of note in the FOMC statement, however, the economic projections showed some considerable movement in the assessment of the Fed Funds rate for the coming years. Not only do the dot plots now project as many as two rate hikes in 2023 (up from none previously), the FOMC is close to projecting a rate hike even earlier in 2022.
This hawkish shift on the committee suggests that if the economic recovery remains on its current path, the first decisive step in tightening the emergency monetary policy measures of the pandemic response could be close.
We still expect this will be touted at the Jackson Hole Economic Symposium ahead of a September forward guidance announcement of tapering QE in December. However, if labor market indicators can pick up notably in the coming weeks, we cannot rule out tapering asset purchases as soon as September.
The market has been surprised by the magnitude of this hawkish shift and has turned not only USD positive, but equities are selling off significantly too.
DATA and STATEMENT: 20:00 *(US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 0.00-0.25% (AS EXPECTED); IOER RAISED TO 0.15% V 0.10%E; MOVES UP TIMETABLE FOR POTENTIAL HIKES TO 2023; FOMC PROJECTIONS SHOW TWO HIKES BY END OF 2023 - Decision was unanimous - Maintains $80B Treasury buying, $40B MBS buying per month - Sees inflation higher on transitory factors
- 7 officials see rates increasing in 2022; 13 officials see rates increasing in 2023
- Will continue bond buying until substantial further progress on goals
- Economic activity and employment have strengthened Statement: 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. Progress on vaccinations has reduced the spread of COVID-19 in the United States.
Amid this progress and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. 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 will depend significantly 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. In addition, the Federal Reserve will 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 the Committee's maximum employment and price stability goals.
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.
Link: https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a.htm - Implementation
note: https://www.federalreserve.gov/newsevents/pressreleases/monetary20210616a1.htm Related ( EUR/USD USD/JPY JPY/USD SPY TLT SHY USFED FXY )
- Source: TradeTheNews.com
