- We expect the Fed to keep monetary policy and policy signals unchanged. It is one of the interim meetings without updated forecasts and dots.
- The Fed is outcome-based and not forecast-based and will not change rhetoric until they see the strong economic data.
- Based on our very positive US macro outlook, we continue to see the Fed moving in a more hawkish direction later this year. It may happen already in June or July but more likely in September.
- We continue to expect actual tapering will start in January 2022 (pace: USD20bn per meeting). We expect the first rate hike in H1 2023. Risk is tilted towards a more hawkish Fed (faster tapering pace and the first rate hike in 2022).
- The April FOMC is not expected to have any significant impact on the US bond market. We have a 2.0% six months target for 10Y UST yields.
- We do not expect the Fed meeting will have a significant impact on EUR/USD. With EUR/USD at 1.20 and our strategic view on real dollar yields, we see the surprise potential as being pro-US, towards a hawkish Fed and stronger USD in 2021.