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NatWest was unsurprised by the findings of the framework review relative to expectations, but were surprised by the earlier release as opposed to Sep FOMC. They see the flexible avg inflation target as "probably the most modest and incremental change relative to some of the other options officials could have announced (e.g., price level targeting, nominal GDP targeting, etc...) and has been fairly well telegraphed". Even so, "the completion of the framework review signals that rates are unlikely to be raised for a very long time".

NatWest also note no surprise that there was no mention of yield curve targets or references to upcoming changes to fwd guidance or asset purchases, as "recent Fedspeak has hinted to a little less urgency about making a change to forward guidance".

Having expected the FOMC to adopt formal fwd guidance at the Nov FOMC, NatWest stands their ground on that timing after Powell's speech (unlike most of the sell-side), saying that "without the confidence in the overall economic outlook, a pivot to explicit forward guidance still seems a little premature", and pointing to Fedspeak over the next week as key on timing. Eventually they expect the FOMC to adopt outcome-based) forward guidance.

MNI London Bureau | +44 203-865-3807 |
MNI London Bureau | +44 203-865-3807 |

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