US | FOMC Preview: Maintaining a steady course

The focus of next week’s FOMC policy meeting will be Chairman Powell’s press conference. We look for Powell to present a more optimistic, but still cautious outlook. He should continue to signal very dovish forward guidance, reiterating that since “the economy is far from our goals…now is not the time to be talking about” rate lift-off or QE tapering.

What you will learn:

  • Since the worsening pandemic and the slow initial rollout of the vaccines is restraining activity and presenting downside risks to the near-term outlook, we believe Powell will maintain his dovish tone for now.
  • Looking ahead, we believe faster vaccine diffusion, additional fiscal stimulus stemming from President Joe Biden’s American Rescue Plan, elevated household savings, and rebounding confidence should spark a mini-boom in activity starting this spring.
  • We look for inflation to accelerate to a sustainable 2% pace and the labor market to be at full employment by 2023, thereby satisfying the conditions for rate lift-off. A gradual tapering of QE asset purchases should precede this, starting in 2022.

Topics: United States, Monetary policy, Federal Reserve, US economy, North America, Financial Services

FOMC Preview: Maintaining a steady course