On Wednesday, the Federal Reserve will announce its decision on monetary policy. According to the Research Department at BBVA, the central bank will leave rates unchanged and keep the “do-what-it-takes” approach regarding the balance sheet.
Key Quotes:
“We expect the Fed to leave rates unchanged at their upcoming meeting. The views on the appropriate policy path are likely to coalesce around the post-mid-cycle pause. The hawks, fearing that overly accommodative conditions could fuel financial instability, will view the pause as a positive development, allowing them to time to evaluate how higher accommodation has impacted financial stability. For the doves, the fact that incoming data has tilted to the upside, the yield curve is steepening, inflation is firming and risks to the outlook are improving will ease concerns that failing to reduce rates further could jeopardize the expansion.”
“We do not anticipate the Fed will announce any deviation from their current do-what-it-takes approach to shore up Repo markets; although the groundswell of support for structural, rather than stopgap, solutions suggests that the balance sheet will once again receive significant attention during the meeting.”
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