Sep 2020 FOMC Reaction: QE Hopes Diminished

The prevailing sell-side consensus (from over 20 notes MNI has reviewed) is that while the Fed delivered on outcome-based forward guidance a little earlier than most had expected, it failed to have much of a dovish impact on an already-anchored short end of the Treasury curve / rates, and the outlook for further near-term Fed action now seems a bit clouded.

• Some are looking for the Fed to refine its forward guidance further, not considering the September statement changes to be the final word; others see the next move as being on asset purchases, but the outlook is more clouded since the Fed's communications at this meeting suggested a higher threshold for taking balance sheet action.
• Indeed, sell-side expectations of further-strengthened Forward Guidance seem half-hearted now, with the change in wording in the September statement. And rate hikes are seen at least 3-4 years away.
• Conviction calls for the Fed to adjust QE (composition / pace / both) now appear to be largely put aside, due to the FOMC's apparent lack of enthusiasm on the subject yesterday.
• BNP Paribas says the Fed will "commit to large-scale asset purchases through 2021 and extend the weighted average maturity of UST purchases at its December meeting." UBS sees action on this front too by year-end.
• But others – Goldman Sachs, Danske, TD, for example, have cooled at least slightly on the prospect, now expecting further asset purchase action to depend on further developments (supply-driven yield curve steepening, renewed slowdown in growth, etc).