June 10, 2020

THE FED IS IN “WAIT AND SEE” MODE, BUT KEEPS THE DOOR OPEN TO ADDITIONAL MEASURES

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In Short

As widely expected the FOMC does not foresee any rate increase before end-2022, or using Chair Powel words: “We are not thinking about raising rates. We are not even thinking about thinking about raising rates”
THE FED IS IN “WAIT AND SEE” MODE, BUT KEEPS THE DOOR OPEN TO ADDITIONAL MEASURES
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Highlights:

  • The Fed expects quite a strong rebound, but the severe disruption caused by COVID will require rates to remain at near zero until 2022. The unemployment rate will remain high for long.
  • The May employment report was a pleasant surprise, but also an indication on how unpredictable is the outlook. This warrants waiting and learning from new data before adapting the stance.
  • Anyway, Chair Powel renewed the commitment to use aggressively all the existing tools; bond purchases will continue at least at the current pace. Further instruments, like yield curve control are being discussed.

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THE FED IS IN “WAIT AND SEE” MODE, BUT KEEPS THE DOOR OPEN TO ADDITIONAL MEASURES

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