Fed Review - September 2020: Looking For More

MNI Point Of View:

• The prevailing sell-side consensus is that while the Fed delivered on outcome-based forward guidance a little earlier than most had expected at this meeting, it failed to have much of a dovish impact on an already-anchored short end of the Treasury curve / rates. The long end has weakened on disappointment over a lack of clarity at this meeting from the statement/Powell on a plan for asset purchase tweaks/expanded QE.
• The outlook for further near-term Fed action now seems a bit clouded. Some are looking for the Fed to refine its forward guidance further, not considering the September statement changes to be the final word; others see the next move as being on asset purchases, but the outlook is more clouded since the Fed's communications at this meeting suggested a higher threshold for balance sheet action.
• The market reactionto the September FOMC meeting suggested a modestly hawkish interpretation, or at least, a disappointment compared with dovish expectations. The dollar strengthened slightly, while the key reaction in the US Treasury curve was modest bear steepening as Chair Powell in the press conference did not provide much in the way of reassurance that the Fed would soon expand QE / purchase longer-dated securities.
• And despite the addition of new language in the statement conditioning rate hikes on achieving the inflation target (incl overshoot) and full employment, breakeven inflation expectations ended the press conference basically unchanged from pre-decision.

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https://emedia.marketnews.com/FedRev-Sep2020.pdf

FedRev-Sep2020.pdf