Optimistic Fed Signals "Strengthening" Economy, Shrugs Off Inflation As "Transitory"

  • How does the Fed view the disconnect between the market, which is showing rate hikes expected to come as early as 2022, and the Fed’s own forecasts, which suggest a move isn’t likely before 2024?
  • What kind of downside risks to the U.S. economy does the Fed see from the resurgence of the coronavirus around the world, especially in places like India and Brazil?
  • How much improvement does the Fed want to see in labor-market indicators for historically disadvantaged groups, like the Black unemployment rate, before it begins raising rates?
  • What does the Fed mean by “transitory” -- how long would inflation have to run above its 2% target before it reconsiders that assessment?

... and via Newsquawk

  • In his press conference, it is likely that Fed Chair Powell will maintain the ‘status quo’, keeping his optimism grounded given large slack that remains vs pre-pandemic, and we do not expect any explicit taper signal from him. That said, there are a few phrases we will be on the lookout for:
  • SOME TIME”: The Fed Chair has said that it is likely to take “some time” for “substantial further progress” to be achieved; his opening remarks will be scrutinised to see how these phrases evolve, which may offer insight into when the Committee will seriously debate tapering monthly asset purchases.
  • ON TRACK”: Powell has previously said that when the Fed sees the economy “on track” to achieve this “substantial further progress”, it would communicate that observation, which would presumably result in firmer guidance on the timeline and sequencing of scaling back its purchase rate.
  • SUBSTANTIAL PROGRESS”: Powell is yet to define the exact parameters of what “substantial progress” implies; analysts expect this will become more defined when the Fed wants to begin sending a taper signal.

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