JPM: The July FOMC mtg “was expected to be a placeholder event until more important decisions are made” at Sept mtg and FOMC “met those expectations.”
– “No major changes were made to either Fed’s policy stance or to post-mtg statement” but “there were some hints that further action will be forthcoming,” he said. “First, opening statement of Powell’s press conf. was dovish insofar as he talked about renewed virus control measures ‘starting to weigh on economic activity’ in recent weeks. This suggests a need for the Fed to do more.”
– And second, he noted Powell stated “Fed’s policy framework review will be completed in ‘near future,’ which we understand to be the Sept. mtg. If this results in Fed moving toward flexible average inflation targeting — as we believe — then it is natural to expect a new strategy to entail new actions. (Powell came close to saying the same thing in his answer to the last question). We expect this new action to be tying the prospects for rate hikes to the sustainable achievement of the Fed’s 2% inflation objective.”
GS:
There were no major surprises or revelations at the July FOMC meeting. While n the post-meeting statement noted that economic activity had “picked up somewhat in recent months,” Chair Powell also acknowledged the deceleration in the pace of recovery over the last month.
– Our main takeaway from today’s meeting is that the FOMC has made enough n progress on its framework review to present the final conclusions at its September meeting. We expect the FOMC to adopt average inflation targeting in the strategy part of the review and front-end yield caps in the tools part, though without implying any intention of using that tool anytime soon.
– We also continue to expect the FOMC to follow the framework review in n September with revisions to its forward guidance and asset purchase policies in November. We saw a small hint in Chair Powell’s comments that the transition to a traditional QE-style program will involve lengthening the average maturity of purchases, in line with our expectations.
NWM: As expected, the FOMC voted unanimously to keep the target range for the fed funds rate steady at 0.0%-0.25%
• Fed has to “hope for the best and plan for the worst”
• Conclusions from framework review likely to be announced at September FOMC
• Not too much urgency to change forward guidance just yet
• Shifting our call for changes to forward guidance to November (versus September)
• We still expect some form of average inflation targeting that links rate hikes to higher inflation outcomes
MS: The FOMC made no major changes at this meeting, seeing only the need to update the current conditions paragraph by tempering optimism over recent job gains and stressing that the evolution of the virus will dictate the course of the economy.
• In the press conference, Chair Powell stressed that the framework review has progressed and will be completed in the “near future”. We continue to expect the Fed to adopt a form of average inflation targeting at the September meeting. Additional details about the FOMC’s deliberations will come in the minutes of the July meeting. Powell could then preview the changes at Jackson Hole.
• In rates, our strategists continue to see a decline in 5y real yields as the path of least resistance and suggest staying long 5y TIPS. With QE risk out of the way, they think investor focus will turn to the ongoing fiscal stimulus deliberations and the Treasury’s refunding announcement next week. They see scope for upside surprises on both. They suggest entering curve steepeners by selling 30y notes against 5y TIPS.
• In
FX, our strategists are no longer suggesting short DXY, long EUR/USD, and long AUD/USD, though they continue to suggest selling USD/CAD. While the balance of risks remains toward a weaker USD, risk/reward has softened in recent weeks as positioning and sentiment have shifted toward a weaker USD and, from a technical perspective, the selloff is likely in its final stage. They think revisiting USD shorts makes sense as the release of the FOMC minutes approaches, in three weeks
Nomura: the Wed FOMC meeting outcome showed the FOMC “did not introduce any major policy innovations at the conclusion of the July meeting, as widely expected.”
– “However, Chair Powell’s comments at the post-meeting press conference suggest the FOMC discussed a number of topics that will likely result in significant announcements in September. The Committee reaffirmed its commitment to keeping rates low “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” he said.
– “In addition, purchases of Treasury securities and agency MBS will continue “at least at the current pace to sustain smooth market functioning,” unchanged from June, suggesting the FOMC has yet to coalesce around a new balance sheet policy to provide more accommodation,” he added.
– “The FOMC did add a new sentence that “the path of the economy will depend significantly on the course of virus,” he said. “Given the worsening outlook for COVID-19 since the June mtg, the addition suggests increased uncertainty and likely serves as an acknowledgement of the slower recovery pace in high frequency data since the beginning of July.”
