HomeContributorsFundamental AnalysisFed Monitor: Too Early for the Outcome-Based Fed to Change Rhetoric

Fed Monitor: Too Early for the Outcome-Based Fed to Change Rhetoric

Apr 22 21, 03:52 GMT

Key takeaways

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.

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