FOMC Minutes Preview: Insight Into “Substantial Further Progress”
Submitted by Newsquawk
The Fed affirmed its dovishness and guidance with rates at the ZLB, whilst maintaining its QE at USD 120BN per month of Treasury and MBS purchases.
The statement gave no mention of tapering, while Powell stated in the Q&A that now is not the time to think about such as “substantial further progress” has not been made.
The Minutes could give us some further insight to debate around progress on the Fed’s goals and a timeline to purchase tapering, whilst other policy matters such as tweaks to the administered rates (IOER/RRP).
An insight into “substantial further progress”
The April 27/28th FOMC meeting was a tranquil one. The Fed continued to affirm its dovish stance and guidance with rates at the zero lower bound, whilst maintaining its QE at USD 120bln per month of Treasury and MBS securities purchases. The statement gave no mention of purchase tapering, while Powell stated in the Q&A that now is not the time to think about such as “substantial further progress” on the Fed’s goals has not been made.
Some hawkish regional Fed presidents, mainly Kaplan, have shown a preference to get the taper talk going, but the core Board of Governors continue to press back on tapering expectations, as do the majority of the Fed – the Minutes could provide us with some context on the path to tapering. Since the meeting, there has been both a disappointing April jobs report (+266k vs exp. +978k; prev. revised lower to +770k from +916k), a red hot April CPI print (Core M/M +0.9% vs exp. +0.3%), and a relatively less hot April PPI print (Core M/M +0.7% vs exp. +0.4%). There has also been further progress on recovering from the virus – a key goal for the Fed – as US reopening efforts continue with nationwide cases trending lower.
Recent core Fed speakers have continued to stress that employment goals are far from complete, even if there are signs of inflation being on its way. While Governors Brainard and Clarida have noted that they will continue to look through near term hot inflation prints so long as longer-term inflation expectations (TIPS and surveys) remain anchored at 2%. Thus, the Minutes on Wednesday should provide some greater clarity into the Fed’s tolerance and outlook for inflation, whilst also bringing up some of the intricacies of the debate among members.
Furthermore, we could get some further insight on any approaching changes to the Fed’s administered rates (IOER/RRP), something the FOMC has hinted at in recent meetings, amid the glut of liquidity weighing on money markets. Finally, it’s worth noting that the NY Fed announced the much-anticipated tweaks to its purchases on Thursday to modestly extend the duration to fit more in line with outstanding Treasury debt, so the Minutes will likely show some of the commentary/expectations leading into that decision.
Wed, 05/19/2021 – 13:48