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JPMorgan: FOMC On Hold Until Inflation Overshoot Is “On Track”

FED
  • While JPM didn't expect the FOMC to deliver on inflation outcome-based guidance at September's meeting, they have "long expected" the Fed to make such a move, and "in the event, we believe they did the right thing, as letting the new policy framework "hang out to dry" for a few months before aligning it with the forward guidance would have been hard to justify."
  • JPM sees the new guidance helping keep rate expectations anchored for as long as is appropriate given price developments – "unless inflation surprises to the upside, Fed-watching could be a very boring activity for several years to come".
  • "While the change in asset purchase wording suggests a more traditional QE rationale (e.g. QE2 or QE3), Powell did not indicate there was any strong push on the Committee to, for example, extend the average maturity of their asset purchases. If inflation languishes below 2% in coming quarters or years there will inevitably be calls for the Fed to "do something," and the presumption likely will be to increase the pace or duration of asset purchases."
  • However, "even the Fed's own generally-favorable assessment of asset purchases conducted during the framework review cautioned about the diminishing effects of such purchases to support the economy."
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