FOMC meeting recap Progress toward taper but not substantial yet

FOMC meeting recap: “Progress” toward taper, but not “substantial” yet

As we noted in Monday’s FOMC meeting preview report, the Federal Reserve was never going to make any immediate changes to monetary policy at today’s meeting, but the event would still provide a valuable look into how the central bank is viewing the resurgence of COVID cases across the country and the ongoing elevated inflation readings.

With no updated economic forecasts at this month’s meeting, there were only two major areas of focus for traders:

1) Monetary policy statement

Unlike recent months, there were some noteworthy changes to the central bank’s monetary policy statement, and on balance, they were more hawkish (read: optimistic on the economy) than some traders were expecting.

Relevant changes to the statement include the following:

Removed a reference to vaccinations “reduc[ing] the spread of COVID-19”
Upgraded assessment of “sectors most adversely affected by the pandemic” from “remain weak” to “have not fully recovered”
Path of the economy “depends on” the course of the virus, from “depends significantly”
Added a comment that “the economy has made progress toward these goals [of maximum employment and price stability], and the Committee will continue to asses progress in the coming meetings” when evaluating when to taper asset purchases

The fact that the Committee felt comfortable highlighting the economy’s progress (though notably not the “substantial further progress” that Powell has outlined as a threshold for tapering) suggests that the central bank could theoretically still feel comfortable announcing its taper plans at the late-August Jackson Hole Symposium, rather than delaying them as some analysts had expected.

2) Chairman Jerome Powell’s press conference

In his ensuing press conference, Fed Chairman Powell (as usual) revealed a more nuanced and less dramatic view than the statement implied. Powell reiterated that the Committee expected inflation to drop back to the 2% range but could ultimately turn out to be higher and more persistent than expected. He also repeatedly noted that the inflationary comments in the statement represent a joint communication from all the members of the FOMC, suggesting that there may still be some disagreement about how transitory the current price pressures will ultimately prove.

Separately, Powell said that the economic data still had “some ground to cover” before meeting the threshold for tapering and that the central bank will provide advance notice before enacting any changes on that front. While it would be premature to rule anything out, these comments suggest that the central bank is more likely eyeing a September or November taper announcement, rather than at the August Jackson Hole Symposium.

Market reaction

The initial reaction to the release of the statement suggested that the central bank was a bit more hawkish than expected, with the US dollar rising, gold dipping, and the yield on the benchmark 10-year treasury bond ticking up 2bps. However, each of those moves had reversed by the time Chairman Powell took the stage for his press conference and as we go to press, the market’s reaction is more subdued. The most notable development is a touch of weakness in the US dollar, which after an initial pop, is now trading lower about 20 pips against its major rivals as traders bet against a taper announcement next month:

Source: StoneX, TradingView

Moving forward, traders will remain hyper-focused on incoming data, with inflation and labor market readings taking the most precedence. In that vein, Friday’s Core Personal Consumption Expenditures (Core PCE) release will be critical, with a hotter-than-expected reading likely needed to keep the door open on an August taper announcement.

How to trade with City Index

Follow these easy steps to start trading with City Index today:

Open a City Index account, or log-in if you’re already a customer.
Search for the market you want to trade in our award-winning platform.
Choose your position and size, and your stop and limit levels.
Place the trade.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.