FOMC Preview: More wait and see

Expectations are for the FOMC to still sing their same tune.
The March FOMC meeting was highly anticipated. Bonds yields round the world were rising, as were inflation expectations. However, Fed Chairman Jerome Powell had indicated at the meeting that the increase in yields was thanks to confidence within the US recovery which the Fed isn’t getting to hike rates until the labor pool has fully recovered and inflation is sustainably above 2%, which they don’t expect until 2023. they need to ascertain hard data, not forecasts. Employment

Fast forward to April’s upcoming meeting on April 27th-28th. Non-Farm Payroll data was hot in March, with the economy added 916,000 jobs to the economy. However, one datum doesn’t equal a trend. additionally , Initial employment claims also are at their lowest levels since the pandemic began over a year ago. However, there are still roughly 8 million jobs that haven’t been recovered since the onset of the coronavirus.

Inflation

The rise in yields heading into the March meeting has plateaued and are not any longer screaming higher. The benchmark 10-year yield is trading near 1.57%, vs a March 31st high of 1.774%. Inflation wasn’t a priority at the March meeting and Powell has noted that they’re going to let inflation run hot while the Fed focuses on maximizing employment. as long as statement, inflation and bond yields shouldn’t be an element at this meeting.

Other economic data

Retail sales were much above expected in March (increased demand). Recent PMI data has shown that the recovery in manufacturing, and now services, are strong. However, there are supply concerns thanks to the coronavirus (decreased supply). internet result should be higher prices, and thus higher inflation down the road, however the Fed is expecting that tough DATA before making a call.

Fiscal stimulus and taxes

Before the March meeting, Congress passed Joe Biden’s $1.9 trillion stimulus package. Since then, Joe Biden announced his $2 trillion infrastructure package. On Thursday, it had been released that he’s seeking a near doubling of capital gains tax for the rich from 20% to close 40%. As these proposals are still in their infancy, the FOMC might want to ascertain how these plans unfold over the approaching months before they create a choice to scale back accommodation.

Coronavirus and vaccines

In the US, the coronavirus is increasing in some states, while decreasing in others. The vaccine distribution remains strong, despite the pause within the Johnson and Johnson vaccine. However, the Fed noted in March that there are still risks that cases consistently rise again thanks to mutations. that’s unlikely to possess changed since the last meeting.

What to expect?

Expectations are for the FOMC to still sing their same tune. Without staff projections at this meeting (no dot plots), the foremost likely outcome are going to be Wait and see. While the committee may note the pickup within the recovery, they’re going to presumably still emphasis the necessity for an entire labor recovery and to ascertain inflation sustainably above 2%. Fed Chairman has said they’re going to advise the markets well beforehand of tapering the $120 billion in asset purchases monthly . this might not the meeting for this announcement.

DXY

Heading into the March FOMC meeting, the US Dollar Index had paused its rise as traders waited the results of the meeting. On the day of the meeting, the DXY moved lower, only to resume its strong uptrend into the top of the month and quarter. The DXY peaked on March 31st and has pulled back to the 61.8% Fibonacci retracement level from the February 25th lows to the March 31st highs, near 91.13. like the March meeting, price seems to possess paused before the meeting. Any hints of tapering may send the DXY higher, while a discussion of “lower for longer” could cause the greenback to resume its move lower.