BofA Preview: Strong Data, But More Progress Needed

BofA sees the focus at the April FOMC on the language in the statement and in Powell's presser. Powell and the FOMC "to give a more positive view of the economy but reiterate that the economy needs to make further progress before signalling any policy change and risks remain from the virus."

• Statement: Changes to the assessment of the economy to reflect better growth data in COVID sensitive sectors while emphasizing the improvement is just beginning, and mentioning the recent but likely transitory strength in inflation.
• Press conference: BofA looking to see if Powell reiterates "some time" before "substantial further progress" or changes the description of the path. BofA: "We believe 'some time' is still appropriate, but there is a risk that he shifts".
• Powell likely to explain difference between desired output level vs growth rate (esp on jobs).
• Robust discussion on the concern over shortages (both labor and for supply chain) – Powell to note these are temporary challenges and that capacity will return.
• Future action: Powell may signal that discussions on defining "substantial further progress" planned at the June FOMC. EFFR to have to drop to at least 0.06% before the Fed acts; odds of an IOER / RRP tweak at this meeting just 15-25%.