Highlights:

• As widely expected, the Fed will start reducing bond purchases before the end of the month. Net purchases will end in June.
• The well-advertised view that the current inflation is just a temporary phenomenon was, detailed in the press release, which also hinted at supply bottlenecks as the major cause of slow employment growth and volatile activity. The belief that the easing of constraints will lead to stronger employment growth and more moderate inflation was reiterated too.
• Chair Powell repeated that the much more demanding test for lift-off is not met as the labour market remains weak, partially pushing back against market expectations of an early rate hike in mid-2022. Importantly, the FOMC thinks that when full employment is reached (by Q3-2022 at the earliest) it is possible that inflation could be at a level consistent with a rate hike. We still point to Q4 2022 as the most likely time for the first rate hike.

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