Fed may consider providing more stimulus next week if there is no relief package in sight – Rabobank

Next week, the FOMC will have its monetary policy meeting. According to analysts from Rabobank, the Federal Reserve could consider additional monetary stimulus if there is no sight of more fiscal stimulus. 

Key Quotes: 

“The FOMC is expected to give more explicit forward guidance on its asset purchase program on December 16, linking it to the recently adopted strategy of flexible average inflation targeting, and making it consistent with the forward guidance on rates.”

“If there is no fiscal stimulus or relief package in sight next week, the FOMC may consider providing additional monetary stimulus through its asset purchase program. The FOMC has three options: indicate a longer horizon for asset purchases through forward guidance, step up the pace of asset purchases or shift the composition to longer maturities.”

Given what FOMC participants have said in public they are likely to focus on forward guidance in December and make decisions on the parameters of the asset purchase program in January, when the dust has settled in the political arena and there is more clarity on fiscal policy.”

“If the FOMC has given up hope on Congress in recent days we may see a change to the program as soon as December 16. In this case (not our base case), a shift in composition to longer maturities may be the most attractive option.”