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On Wednesday, the FOMC will end its two-day meeting and will announce its decision on monetary policy. The Federal Reserve will also release the Summary of Economic Projections. Analysts at CIBC, expect a more dovish statement than what market participants consider at this moment. 

Key Quotes: 

“The statement will likely strike a more dovish tone than the prevailing market sentiment. Officials will reiterate that the recovery will be slow, even after an apparently quick start in May. That dovishness will likely be front-and-center in the accompanying projections and dot plot which are expected to reappear after being bypassed in March.”

“Officials could promise to keep the policy rate pinned down for a certain amount of time or until the unemployment rate reaches a certain threshold. But short-rate expectations are not where their issues are. For much of the next two years, the expected rate is trading closer to zero than the mid-point of the 0 to 0.25% range.”

“That likely leaves either an increase in the size of the Fed’s bond-buying program or a move towards yield-curve control. Nothing is off the table, and the Fed has justifiably acted very aggressively this time around. So a move towards additional easing via the long-end could happen.”

“Financial conditions in the United States are close to their pre-COVID levels, assisted by rising equity prices and a softening USD. The ‘mini tantrum’ seen in long-end yields recently is a development that warrants caution in this regard, though we think it is a bit too premature for the FOMC to implement anything tomorrow.”

 

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