Statement: “Confidence” Guidance Is Already Set

MNI’s Markets Team sees almost no scope for a change to the policy Statement in March, including in the key forward guidance paragraph (Link to January FOMC statement).

• After significant revisions in January, the opening paragraphs are unlikely to be changed much in March. There could be some of the usual mark-to-market changes in the description of growth or job gains, but a shift from describing inflation as remaining “elevated” is very unlikely given incoming data.
• Having shifted from a tightening to a neutral bias in January’s Statement, the forward guidance will again state the Committee “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent”. Language to this effect has been used in one form or another by all FOMC participants who have commented in the inter-meeting period on the rate outlook.
• It would be a major surprise if the FOMC announces a decision on QT tapering at the March meeting, and therefore the relevant sentence on asset reduction is very likely to remain unaltered.
• We’ve included two questions in our Instant Answers that address the possibility of a surprise QT shift, eyeing either a slowing of the pace of asset reduction, or the ending of Treasury runoff altogether.
• Historically the FOMC has communicated initial guidelines on balance sheet policy outside of the Policy Statement itself: in the Chair’s press conference, in the meeting minutes, and in separate statements alongside the policy decision (see January 2019’s “Statement Regarding Monetary Policy Implementation and Balance Sheet Normalization” – link here).
• No dissents to the decision are expected.