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Arguably Dovish: Lack Of Guidance Change / Bigger QT Taper Than Expected

FED

The Statement also looks Dovish in two respects.

  • First, by not changing any of the language surrounding forward guidance/reaction function, the stalling in disinflation doesn't necessitate the removal of the easing bias, and perhaps suggests (as multiple senior FOMC officials have said in the past month) that they believe the current configuration of policy will be sufficient to bring down inflation - it will just take longer than previously thought.
  • Second, a bigger QT taper than expected is arguably dovish: the cap on Treasury redemptions has been lowered to $25B from $60B, which was only foreseen by a couple of analysts (versus the overwhelming consensus that it would be $30B).
  • Though Powell will surely insist this is not related to the monetary policy stance, and the later-than-expected start (June, vs the widely expected May start) means an additional month of full-fledged runoff.
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