The Fed remains on course: zero rates and purchases at current rates “for the next few months”

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ServiceThe June meeting

Just a hint of forward guidance, which is not excluded in the future. It does not seem to have convinced the proposal for a control of the yield curve.

by Riccardo Sorrentino

(REUTERS)

Just a hint of forward guidance, which is not excluded in the future. It does not seem to have convinced the proposal for a control of the yield curve.

2 ‘of reading

Firm rates and a diagnosis of the economy that has not changed. Not even the latest data on the labor market, which hit the markets and gave the impression of a small change, have changed the orientation of the Federal reserve: the US central bank has stressed that financial conditions have improved thanks to its initiatives and his policy will continue to follow the course he has drawn.

The only real news of the press release, almost unchanged, is a timid hint of forward guidance: the Fed will continue to support the flow of credit to families and businesses “in the coming months” and will continue to purchase securities at the current rate ( slower than in the first weeks of the epidemic).

At a press conference, President Jeremy Powell confirmed that the FOMC, the monetary policy committee, discussed the possibility of introducing forward guidance on rates and purchases, which is therefore not excluded in the future. The control of the yield curve, which has also been taken into consideration, does not seem to have convinced everyone: “If such an approach integrates with our main instruments it is an open question”

The indication of a monetary policy stance that will remain firm for a prolonged period is confirmed by the “dots”, the dots with which the rate forecasts of the individual components of the FOMC, the monetary policy committee are displayed: everyone imagines that they keep rates stop at the current level – 0-25% – both this year and the next. By 2022, only two out of sixteen think of an increase: one governor at 0.25-0.50%, another at 1-1.25%.

To understand how far the pre-Covid period is, just think that in December, when the Fed funds were at 1.50-1.75%, the governors imagined firm rates for the whole of 2020, between 1.75 and 2% by the end of 2021 and between 2 and 2.25% by the end of 2022.



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