Perspectives Blog

FOMC December meeting scouting report

Zach Pandl, Portfolio Manager and Strategist | December 16, 2013

We expect Fed officials to announce the first slowing of QE at this week’s FOMC meeting The main risk to our expectations is the still-low level of core inflation We also expect the FOMC to pair any slowing of QE with qualitative changes to its forward guidance In the press conference after the September FOMC meeting, Fed Chairman Bernanke offered three reasons for why the committee chose not to slow the pace of its bond purchases: (1) insuffi…

U.S. rates — Data dependence

Zach Pandl, Portfolio Manager and Strategist | June 23, 2014

Evidence of data dependency at the June FOMC meeting suggests policy will respond to unemployment and inflation surprises. We are more confident the Fed’s reaction function is (nearly) done moving. We therefore remain cautious about exposure to U.S. interest rate risk, especially at the middle of the yield curve. The June FOMC meeting contained a little bit for everyone and interest rates reacted only marginally after the announcements. But lo…

Yellen at Jackson Hole

Zach Pandl, Portfolio Manager and Strategist | August 25, 2014

At last week’s Jackson Hole Symposium Janet Yellen was not the dove we thought we knew. Balanced remarks on labor market and cumulative progress toward recovery put her views close to center of FOMC. We see this as further confirmation that Fed leadership is increasingly comfortable with moving toward an exit from zero interest rates—likely by June 2015 or a bit sooner. I must have heard it on the radio recently, because Janet Yellen’s speech…

U.S. rates – An intriguing six point three

Zach Pandl, Portfolio Manager and Strategist | June 9, 2014

Fed and consensus unemployment forecasts are likely to come down after last week’s jobs report. It is not obvious what lower unemployment rate forecasts mean for U.S. monetary policy. June FOMC meeting should shed light on Fed’s worldview—in particular, whether the U3 unemployment rate still matters. The latest jobs report may look pretty bland on the surface, but I can assure you that it will generate plenty of intrigue among close observers…

The Yellen Fed

Zach Pandl, Portfolio Manager and Strategist | October 9, 2013

President Obama to nominate Janet Yellen for Fed Chair. Yellen has strongly supported the Fed’s unconventional easing measures in recent years, and we expect that her nomination will therefore be interpreted as favorable to duration and carry trades. Yellen has described an “optimal control” framework, which could indicate a coming revision to the current structure of the FOMC’s forward guidance. According to press reports, Preside…

U.S. rates – Headwinds

Zach Pandl, Portfolio Manager and Strategist | March 17, 2014

At this week’s meeting, the Federal Open Market Committee looks likely to rework its forward guidance for short-term interest rates once again. We expect revised forward guidance to lean heavily on the idea of “headwinds”; this is a stand-in term for a low equilibrium real rate. We expect that the new guidance will make three main points: (1) that the FOMC is in no hurry to raise rates, (2) that rate hikes can proceed gradually once…

The Fed’s decision tree

Zach Pandl, Portfolio Manager and Strategist | October 8, 2013

…conomic outlook. Yet even setting aside these tail risks, the outlook for QE remains difficult to gauge. Fed officials surprised markets with their decision to maintain the pace of QE at $85 billion per month at the September FOMC meeting, and their subsequent public comments did not provide much clarity (see our earlier take here). We will need to wait for more communication to get a clearer picture on the direction for policy. For the time bein…