Powell Reacs: Morgan Stanley, Wells Fargo See Steeper Curve

Morgan Stanley says that Powell's comments were broadly in line with expectations, but the release of the new Statement on Longer-Run Goals was a surprise. "While this was a historic moment for monetary policymaking, we now need to see the Fed put its money where its mouth is, that is, sustain the economic conditions necessary to generate an overshoot of its 2% goal and return the labor market to pre-Covid tights."

They now see a "meaningful risk" that enhanced forward guidance will be announced at the Sep FOMC, whereas their previous expectation had been the Dec FOMC. They "continue to see a decline in 5y real yields, and a steepening of the curve".

Wells Fargo: "Higher yields and a steeper curve are in line with our forecast and are consistent with a Fed that is willing to tolerate a bit higher inflation over a medium-to-longer run horizon...One thing does seem fairly certain amid these changes: the Fed seems unlikely to tighten monetary policy for quite a long time."