FOMC Minutes Preview: Snore

Submitted by NewsSquawk


The FOMC kept rates unchanged at 0-0.25%, at the June 9-10 meeting, as was expected; it did not announce any enhanced forward guidance, nor did it announce any yield curve control policy. It did however formalize its QE programme, and will now be buying at a rate of USD 80bln per month of Treasuries (which is in line with the current purchase rate, and the bottom-end of the 80-120bln consensus) and USD 40bln per month of MBS (which was above expected – the street had expected between USD 25-35bln). The Committee's forecasts showed it expects the unemployment rate to end the year at 9.3% (analysts expected 9.5-10.5%) improving to 6.5% by the end of 2021 (expected between 5.7-7.1%), and then 5.5% by the end of 2022. The new dots showed the Committee expects rates to stay at current levels through its forecast horizon.


Ultimately, Fed chair Powell adopted a cautious tone, saying that the decline in growth this quarter is likely to be the most severe on record, and the situation with regards to joblessness was still severe, and saw downside pressures to inflation. Powell reiterated statement guidance that rates were going nowhere until progress has been made towards the Committee’s dual objectives, and that the Fed was ‘not even thinking about thinking about’ raising rates. Powell noted the uncertainties presented by the SEP, and said the Fed will update its stance when more information is available; the Fed did not change its longer-term dots, and Powell suggested his own personal motivation for that was his belief that the Fed can prevent the longer lasting damage to the economy caused by the pandemic.

Powell said the current stance of monetary policy was well positioned to support the recovery. The Fed chair said a full recovery is unlikely to be seen until people are confident in resuming activity; he sees that recovery starting in the second half of this year, lasting over the next couple of years, supported by low rates; he added the somewhat obvious caveat that the outlook remained uncertain – in fact, he seemed very aware that a second wave of the virus might derail the recovery efforts. He did note that there would still be a significant amount of people who remain jobless even when the recovery takes hold, so preserving credit was essential to mitigate risks and set the stage for recovery; over the “coming months”, the Fed will be maintaining purchases at least at the current rate. The Central Bank will put the extraordinary tools back in the toolbox “after the crisis has passed”; Powell said that yield curve control policies had been discussed, and its effectiveness remains "an open question".

Once again, Powell called for more fiscal support, which could make a critical difference (PPP, stimulus checks and unemployment insurance had helped, he said). Several times, Powell highlighted caution, noting that the Fed was watching incoming data closely, and we would learn ‘what the real story’ will be for the US economy.


Powell’s testimony to lawmakers was notable in that the Fed Chair noted that the economy had “entered an important new phase and has done so sooner than expected”, a more upbeat assessment than the caution expressed at the FOMC; Powell did caveat his optimism, reiterating that there were uncertainties that remained.  He again reiterated that the path forward would also depend on the policy actions taken at all levels of government to provide relief and to support the recovery for as long as needed.