FOMC Signals Rates Unchanged Through At Least 2023 Despite GDP Forecast Upgrade

Since the last FOMC statement on July 29th, stocks have been in a world of their own (outperforming) while gold, bonds, and the dollar have shown only modest moves...

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Source: Bloomberg

10Y Yields are up around 10bps since The Fed promised to do more of whatever it takes...

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Source: Bloomberg

Real yields are notably lower...

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Source: Bloomberg

On the macro side, surprises have been more to the downside since the last Fed meeting.

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Source: Bloomberg

Notably, the market's expectations for rates has shifted notably more hawkish in the last few weeks since the FOMC statement...

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Source: Bloomberg

And so, having spilled the beans prematurely that The Fed will undertake inflation-average targeting (which is really no different at all to the consistently poor performance the Fed has been undertaking to create inflation for a decade), expectations were not high for anything market-moving today with rates not expected to move, Fed purchases not expected to move, and any possible dovish signaling will stem from the Fed’s updated projections.

As we detailed earlier, while growth and unemployment forecasts will likely be nudged up and down respectively, the focus will be on the central bank’s forecasts for rates in 2023 (released for the first time) and on inflation to see if it still sees inflation running below target over its forecast horizon; if it does, the new policy framework implies it will be longer before the Fed begins thinking about lifting rates.

Highlights:

  • Fed Says to Continue Treasury, MBS Purchases at Current Pace
  • Fed Holds IOER at 0.10%, Discount Rate at 0.25%
  • Fed Vote Was 8-2, Kaplan and Kashkari Dissented
  • Fed: 13 of 17 Officials Forecast Rates on Hold Through 2023
  • Fed: Health Crisis Poses Considerable Risks to Economic Outlook
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