Just how patient will the Fed be?
On the face of it, Wednesday’s Federal Open Market Committee (FOMC) meeting might seem destined to be bland. A “patient” Federal Reserve likely will be on full display, and no one expects a rate hike.
But the accompanying release of the Fed’s latest Summary of Economic Projections (“dot plot”) should hold intrigue for market participants. We anticipate it will reflect the downward shift of the path of tightening that policymakers have emphasized over the last few months. The press conference will be scrutinized for a more nuanced take by Chair Jerome Powell.
Also expected at this meeting is a confirmation of the Fed’s plans for its balance sheet. The January FOMC meeting minutes revealed policymakers’ desire to pursue a framework of ample reserves going forward, i.e., slowing down the taper. If so, it will be a continuation of its policy U-turn in fall, meaning holding more securities than would historically have been the case. The end of the taper will have implications for the Treasury and agency mortgage-backed markets depending on how the Fed chooses to alter the amount it reinvests. Tied into this plan likely will be a stated intention to decrease excess bank reserves to the trillion dollar mark, but we don’t expect specifics about that at Wednesday’s meeting.