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Market News Topics
March 20, 2024 20:03 GMT
QT Announcement Teed Up For May, Rate Cut Also Possible? (2/2)
FED
- Powell Doesn't Forcibly Dismiss May/June Rate Cut: Unlike January's press conference, where Powell seemingly came armed with prepared remarks to crush expectations of a first rate cut in March (which recall was around 50% priced going into the meeting), today he didn't really push back against the prospects of a May or June cut when asked. He said the FOMC would take a meeting by meeting approach, and that "things can happen in an intermeeting period, so I wouldn't want to dismiss anything". Interestingly he also noted one risk scenario would be an unexpected weakening in the labor market "could be a reason for us to begin the process of reducing rates". Not a major endorsement of a cut at the next meeting or two, but Powell's characterization appears that it certainly hasn't been ruled out.
- May Looks Like The QT Taper Timing: Asked whether the FOMC could decide by May on slowing balance sheet runoff, Powell seemed to hint that this was the case ("In terms of the timing, I would say "fairly soon." I don't want to be more specific than that. You get the idea.") Overall regarding the parameters of a program, Powell's commentary echoed Dallas Fed Gov (and ex-SOMA chief) Logan's comments on how to conduct the taper, noting the need to heed signals from money market conditions and whether they show reserves shifting from "abundant" to "ample", as well as an acknowledgement that there is an issue with the distribution of reserves among institutions in the system and not just an issue with reserve levels outright. While the FOMC hasn't discussed the size of the taper ("I don't want to give a specific number because we haven't made a decision"), Powell said "it's ironic that by going slower you can get further". This potentially adds up to a cautious taper announced in May, but it's likely we will hear more in the meeting minutes.
- However, Powell wouldn't be drawn on whether the balance sheet composition could change significantly, saying that the FOMC's longer-run goal is to return to a mostly Treasury balance sheet, and that "I expect that once we're through this we'll come back to other issues" regarding composition and maturities - "but that's not urgent right now".
- All-Time Highs For Stocks, No Problem: When asked about how the FOMC assessed current financial conditions - which by some measures have become increasingly loose in recent months - Powell seemed very unconcerned about its impact on reaching the inflation goal: "Ultimately we think that financial conditions are weighing on economic conditions - you can see it in the labor market where demand is cooling off from extremely high levels. We did see significant progress on inflation despite financial conditions sometimes being tighter, sometimes looser."
To read the full story
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Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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