FOMC meeting is the major focus for today and there is no doubt that Fed will keep policy unchanged. Federal funds rate target will be held at 0.00-0.25% while the QE-without-limit program will be maintained. A major focus will be on the first update to economic projections since last December. In particular, the expected strength of recovery in H2 would be revealed, as well as the time frame for the economy to go back to pre-crisis level. Given the strong May non-farm payroll report, there might be some pleasant surprise to the unemployment projections. Meanwhile, inflation forecasts could be off the mind of traders for now.
Fed’s view on the economy will be heavily tied to its projected path of emergency stimulus exit. It’s still too early to call for an end of the stimulus for now. But eventually, Fed needs to lay down the conditions, and possibly the time frame. Unemployment rate has improved while stock markets are at record high, while economy is gradually reopening. Fed might hint on ending some of the lending program at least. This would be the second focus.
The third focus would be on any information regarding “yield curve control”. WSJ reported over the weekend that officials are debating on whether to reinforce low-rate pledge with yield caps at the long-end. That could be seen as a way to keep long-term rates low, and help the economy to transit as Fed moves out from the current emergency measures at a later stage. Fed Chair Powell might reveal some information on his ideas.
Here are some suggested readings:
