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Obviously, we expect the FOMC to keep the federal funds target range steady at 0-0.25%. We also expect the Committee to maintain a combined $120bn per month pace for asset purchases ($80bn per month for Treasury securities and $40bn per month for agency mortgage-backed securities).
However, the latest comments by key FOMC members (Kaplan, Harker) suggest that the FED may launch tapering discussions at the upcoming meeting. During the press conference, we do not think FED Chair Jerome Powell will reveal any clues on the committee ’s debate. Minutes of the June FOMC meeting will be helpful. Mr. Powell is likely to emphasize that tapering is premature since the Federal Reserve remains far from achieving “substantial further progress” especially after consecutive downside surprises in May and April nonfarm payroll count growth.
To balance the Fed’s tone, Mr. Powell will reaffirm the dovish forward guidance on rates. Hence, we do not believe that the median forecast for the federal funds rate at the end of 2023 will show a 25bp rate hike.
On economic projections, we believe the FOMC will upgrade growth and inflation in 2021 on the back of positive indicators, published since the last meeting in March. For 2022 and 2023, we do not see material change notably on inflation projections. During the press conference, we think FED Chair Jerome Powell will reiterate that high realized inflation largely reflects transitory factors.
In summary, we believe that the FED will try to keep a balanced communication, that is to keep its accommodative monetary policy stance despite new discussions about gradual tapering.
We do not think this meeting will have a significant impact on rates, but it could lead to a moderately steeper curve in US interest rates.
Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.