Fed is generally expected to keep monetary policy unchanged today. Fed funds rate will be kept at 0-0.25%. Asset purchase will also remain at USD 120B per month pace. Developments since last meeting were positive, with upbeat economic data released recently, passage of USD 1.9T of fiscal stimulus, and progress in vaccination. Fed would likely upgrade GDP forecast for the year, but emphasize it’s premature to even consider stimulus withdrawal.
A much talked about topic is the surge in treasury yields. Fed chair Jerome Powell could just reiterate the view that rising yields were a result of better economic developments and stronger market confidence. That might give treasury yields a note for another powerful rise. Or, yields could be knocked down if there is any hint on the possibility of some measures like operation twist to curb yields. The reactions in the markets could be very volatile.
Here are some suggested readings:
- FOMC Preview – Expect to See Upgrade in GDP Growth Projections
- What To Expect From This Week’s Fed Meeting
- FOMC Meeting Preview: Will Inflation Spook the Fed?
- March Flashlight for the FOMC Blackout Period: No Major Policy Changes but Perhaps Some Technical Tweaks
- Historical Lessons About U.S. Inflation: Is Meaningfully Higher Inflation Looming?
