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MNI Fed Preview - Apr 2021: Through The "Inflection Point" (Update)

The U.S. economy has reached an "inflection point", per Fed Chair Powell's recent comments – but a policy shift will still have to wait.

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*NOTE: Updated to reflect Deutsche Bank's Fed funds rate call change post-March FOMC – see p.4 of PDF and table below
  • The U.S. economy has reached an "inflection point", per Fed Chair Powell's comments earlier this month – but a policy shift from the FOMC will still have to wait until later in the year.
  • For now, markets appear to be aligning with the Fed's patient approach.
  • Focus at the April FOMC will be on any changes to the statement to reflect strong incoming economic activity data, and the degree to which (if any) Powell indicates that the upcoming meetings are 'live' with regards to discussions on tapering asset purchases.
  • Opinion is split on whether the Fed will deliver a technical change to its administered rates at this meeting, but it's doubtful that short-end rates have fallen low enough to force the central bank's hand.

FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK:

FedPreviewApr2021Update.pdf


Analyst Views - Fed Outlook:

  • Consensus on the path of Fed policy has become marginally more hawkish since the March FOMC meeting, as incoming data (particularly on employment) has bolstered confidence in the economic recovery.
  • Prior to the March FOMC, some analysts had expected tapering starting only in 2023 and hikes in 2025, but such calls have mostly been brought forward (changes in expectations are bolded in the table below – BNP Paribas and TD have made the most significant changes; Deutsche has pushed back its hiking call).
  • Broad sell-side consensus is that asset purchase tapering will begin by early 2022 (beginning ranges from mid-2021/Q3 2021 though), with Fed funds rate hikes not before late 2023/early 2024 (though liftoff timing ranges from mid-2022, to late 2024).