Will The Fed Unveil A New Monetary Policy Today?

It’s unclear how a policy revision will affect markets and economic expectations, but it’s still remarkable that the Fed is planning to loosen it’s upside tolerance for inflation while the Fed funds target rate is close to zero and pricing pressure is weak.

“Since we’re already at zero, it means we’ll be at zero even longer and the central bank is going to be even more aggressive about trying to meet its inflation mandate,” observes Jon Hill, senior fixed income strategist at BMO “In the past they pre-emptively hiked to get ahead of inflation pressures. What they’ve shifted to is actually waiting until they get sustained inflation.”

Deciding whether this shift will be successful – or unleash unintended consequences – will take time. Assessing the odds, one analyst is managing expectations down.

Cornerstone Macro’s Robert Perli says the Fed is right to revise its policy, but AIT as currently conceived will fall short of what’s needed. “The Fed is putting up a valiant effort,” he says. “I think the odds that it will succeed are low.”

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