Goldman Sachs: Still "Some Ground to Cover"

Goldman saw the July FOMC meeting as offering "little new information".

• They saw a "few reasons" not to make much of the updated statement language: "First, this language likely arose as a compromise intended to satisfy more hawkish participants without saying anything that isn't obvious. Second, it was balanced by language noting that the FOMC 'will continue to assess progress in coming meetings,' which seems to rule out a formal taper announcement in September. Third, Powell used similar language in his June press conference."
• However, the statement "expressed somewhat less concern about the impact of the virus on the economy, which was somewhat surprising... Powell balanced this in his press conference, though".
• Powell's comments on taper composition were consistent with $15B taper pace ($10B Tsy,$5B MBS), with 2^nd most likely being $20B ($10B Tsy, $10B MBS).
• This would "provide an implicit option to maintain the $20bn total pace of tapering by doubling the pace of UST tapering after the MBS purchases end, which would shorten the taper period from eight meetings to six. This might be useful if inflation surprised to the upside and the FOMC wanted the option to hike sooner."
• Future action: First taper warning at Sep FOMC, formal announcement in Dec. 20% probability of Nov announcement, 55% December, 25% later.