MNI Fed Review - Mar 2021: FOMC’s Message Already Being Tested

• The March FOMC delivered a dovish outcome – at least initially – and the immediate market reaction to the decision was straightforward.
• With the new FOMC dot plot NOT indicating a hike in 2023 despite a substantial upgrade in the growth /employment outlook and inflation moving above 2.0%, short end yields fell sharply as it appeared that the Fed was clearly signalling it would be very patient before tightening.
• It appeared as though the Fed successfully communicated via its economic projections that it took its average inflation targeting framework seriously and would not tighten prematurely.
• But this price action suddenly reversed overnight, suggesting that markets digested the FOMC outcome and began calling into question either the FOMC's reaction function, or the forecasts themselves, or perhaps both.
• Please see the document linked below which includes the MNI View, our Policy Team's review, synopses of 23 sell-side notes, comparisons of the Statement and economic projections/dot plot vs the previous meeting's, and a transcript and highlights of the Powell Press conference.

FedRev-Mar2021.pdf