29 Apr 2014
FOMC: maintaining the status quo - BAML
FXStreet (Guatemala) - Strategists at Bank of America Merrill Lynch said Markets widely expect the April FOMC meeting will be status quo in terms of policy.
Key Quotes:
“We would agree."
"Markets widely expect the April FOMC meeting will be status quo in terms of policy. We would agree."
"Having just updated its forward guidance in March, we do not anticipate the Fed will make any further substantive changes at the April FOMC meeting. Similarly, we expect the Fed to continue to taper by US$10bn, bringing the purchase pace down to US$45bn per month (US$25bn for Treasuries and US$20bn for MBS)."
"Where we depart from recent market commentary is the interpretation of any changes in the outlook language. Given the weak first quarter relative to the Fed's fairly optimistic 2014 forecasts, an FOMC statement that notes the improving data and fading weather impact should merely confirm the Fed's current policy guidance and not be seen as hawkish. Conversely, a statement that expresses additional concern over the slow housing recovery or persistently low inflation would raise the odds of a dovish drift in the Fed's policy stance, in our view."
"Relative to March's meeting, the risk of a misstep in Fed communication is arguably lower: the April statement will not be accompanied by a press conference or an updated dot plot as part of a revised Summary of Economic Projections - the sources of last month's communication challenges. Some commentators have argued that the rates market is poised to sell off on a more optimistic - or even neutral - FOMC statement."
"The fixed income market has been positioned short Treasuries, but it is not clear why the market should react to data improvements that it knows are already incorporated into the Fed's own economic forecasts and its dot plot. Ironically, as noted above and developed further below, the risks to the Fed's outlook are now more to the dovish side."
"But this would not be the first time the Fed and the markets are not entirely on the same page. The challenge for the FOMC this year is to find ways to minimize those occurrences."
Key Quotes:
“We would agree."
"Markets widely expect the April FOMC meeting will be status quo in terms of policy. We would agree."
"Having just updated its forward guidance in March, we do not anticipate the Fed will make any further substantive changes at the April FOMC meeting. Similarly, we expect the Fed to continue to taper by US$10bn, bringing the purchase pace down to US$45bn per month (US$25bn for Treasuries and US$20bn for MBS)."
"Where we depart from recent market commentary is the interpretation of any changes in the outlook language. Given the weak first quarter relative to the Fed's fairly optimistic 2014 forecasts, an FOMC statement that notes the improving data and fading weather impact should merely confirm the Fed's current policy guidance and not be seen as hawkish. Conversely, a statement that expresses additional concern over the slow housing recovery or persistently low inflation would raise the odds of a dovish drift in the Fed's policy stance, in our view."
"Relative to March's meeting, the risk of a misstep in Fed communication is arguably lower: the April statement will not be accompanied by a press conference or an updated dot plot as part of a revised Summary of Economic Projections - the sources of last month's communication challenges. Some commentators have argued that the rates market is poised to sell off on a more optimistic - or even neutral - FOMC statement."
"The fixed income market has been positioned short Treasuries, but it is not clear why the market should react to data improvements that it knows are already incorporated into the Fed's own economic forecasts and its dot plot. Ironically, as noted above and developed further below, the risks to the Fed's outlook are now more to the dovish side."
"But this would not be the first time the Fed and the markets are not entirely on the same page. The challenge for the FOMC this year is to find ways to minimize those occurrences."