Deutsche's assessment of the June FOMC: -.......>

FED: Deutsche's assessment of the June FOMC:

- FOMC acknowledged the improvement in asset markets and now views financial

conditions as more supportive (relative to April 29) of its policy goals.

- In our view, guidance on asset purchases is the first step towards formalizing

an open-ended QE program, possibly paired with front-end YCC, which Powell

explicitly addressed in his press conference.

- Dot plot very clearly demonstrates that even the most hawkish participant is

not "thinking about thinking about" raising rates anytime soon.

- Given inflation undershoot in SEP despite easy policy, it would be entirely

reasonable for the Fed to take further steps, such as avg inflation targeting,

to prevent this shortfall from further eroding infl expectations.

- Looking ahead, the Fed has made clear that it will use all of its tools for as

long as it takes to support the recovery. FOMC to adopt a stronger form of fwd

guidance at an upcoming meeting (likely Sep) reinforced by front-end YCC focused

around the 3-Yr horizon. This may coincide with conclusion of policy review,

which we expect will lead to a pivot to an average inflation target.