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Today, the Federal Reserve (Fed) is set to announce its Interest Rate Decision at 18:00 GMT. The market consensus is the Fed to stay on hold and as we get closer to the release time, here are the expectations forecast by the economists and researchers of nine major banks, regarding the upcoming FOMC meeting. The market interest will be in the Projection Materials detailing the Fed’s views on economic growth, prices and policy for the next three years.

Danske Bank

“We expect the Fed to keep the policy rate unchanged at 0.00-0.25%, as the appetite for going negative is very limited. We also expect the Fed to keep the QE programme unchanged (i.e. unlimited and flexible), although we cannot rule out it will start saying how much it will buy each month. We could also see a strengthening of the forward guidance, i.e. be more precise about what the conditions are for the Fed to start considering hiking (assuming a recovery).”


“The state of the economy is so fragile that the Fed probably sees the risks/uncertainty of introducing (unconventional) forward guidance now as too big. Instead, Powell will likely reiterate his words from last time that the Fed is ready to do more if needed and that this ‘more’ may for now be linked to the liquidity and credit facilities.”


“The Fed responded with an extraordinary set of measures to support the economy and financial system. We do not expect additional measures in the-near term. Chair Powell will emphasise the highly uncertain outlook and express his worry about the possible damage to the economy’s longer-term capacity. Any future monetary support is likely to come as forward guidance and asset purchases.” 


“We don’t expect any major new policy announcements, including on forward guidance for the funds rate or QE, but the tone will almost certainly remain quite dovish, with no let-up in easing through balance sheet expansion. In addition, we expect the chairman to start prepping markets for the adoption of forward guidance tied to a minimum for inflation in the context of average inflation targeting. Adding to the dovishness, updated projections will probably show inflation falling further below 2%, and the funds rate pinned near 0%, through at least 2022.”


“In the near-term, the Committee is likely to focus on working out its forward guidance on rates and asset purchases. In addition to tweaking its formal statement, the dot plot also gives the FOMC an opportunity to provide forward guidance. Meanwhile, the Board of Governors will continue to expand its special lending facilities. The Fed does not seem to be in a hurry to tweak the IOER rate, even though that would help reduce the occurrence of negative implied fed funds rates and thus quell the speculation about negative policy rates in our view. Further ahead, while negative rates are still a no go area for the FOMC, yield curve control is being discussed as an option for the future. At the press conference, markets will be particularly interested in the segments of the curve that the Fed has in mind for control.”


“With policy rates down to what has traditionally been considered the effective-lower bound, some are now wondering if the Fed will venture into negative interest rate territory. Judging from recent Fed speak, this is unlikely to happen, at least not in the near future. With rates on hold, the Fed could decide to use this week’s meeting as an occasion to make its forward guidance more explicit, a possibility discussed by FOMC members at their last meeting. The Fed could adopt outcome-based forward guidance linked to specific economic indicators such as the unemployment rate or inflation. Alternatively, it could introduce date-based guidance and announce it does not intend on raising rates before a certain date. An outcome-based framework is the likelier scenario in our opinion.”

Deutsche Bank

“Our economists expect the meeting to mark a first step away from a complete focus on crisis prevention towards more traditional goals of providing accommodation to support the recovery. In particular, they expect the Fed to announce an open-ended QE program consistent with monthly Treasury purchases of between $65 billion and $85 billion. In addition, the meeting statement should slightly enhance the commitment to keep rates lower for longer. An updated SEP should reflect a cautious outlook where elevated unemployment and below-target inflation should result in the median dots signalling that officials expect to keep rates unchanged at least through end-2022.”


“The Fed already has all guns blazing in terms of quantitative easing, and has no appetite to wade into negative rates. So the only thing of interest will be how they depict their view on what lies ahead.”


“The Fed will leave the target rate unchanged at 0-0.25% and we suspect they will refrain from offering much new forward guidance. We suspect they will retain the language that they will continue the purchases ‘in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions’. In terms of the outlook for policy, the new forecast summary of projections will provide an insight into how the range of views within the committee is shaping up. We suspect that there is a decent chance they will pencil in one rate rise before the end of 2022, which may help to dispel some talk of the potential for negative rates. Fed officials have been dismissive of this as a tool and we do not expect it to be implemented.”


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