Previewing this week’s FOMC meeting, the Rabobank research team thinks that the FOMC will upgrade the economic outlook and projections amid improving data and the approval of the American Rescue Plan.
Key quotes
“At the post-meeting press conference, Fed Chair Powell will have a difficult job pushing back against market expectations of higher inflation and earlier policy rate hikes. An upward shift in the dot plot could make his job even more difficult.”
“Even if the rise in yields in itself would not be a problem to the economic recovery, it could cause cascade effects that would warrant intervention by the central bank.”
“If pushing back verbally against market pressures does not suffice in the coming days and weeks, the next step for the Fed could be an adjustment to the asset purchase program. If the reflation trade really gets out of hand, the FOMC may be forced to revisit the option of yield curve control.”
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