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…

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…

U.S. rates — View update

Zach Pandl, Portfolio Manager and Strategist | April 4, 2014

…burner for bond investors all year. Forward guidance: We continue to be struck by the confidence investors place in the Fed’s own forecasts for the federal funds rate (these are the so-called “dots”, named after the chart the FOMC publishes showing the forecasts, below). The focus on these forecasts has not seemed to change despite meaningful revisions at the last FOMC meeting. As we have explained before (see here), the credibility of the Fed’s…

The Fed’s outlook and leadership in flux

Zach Pandl, Portfolio Manager and Strategist | August 1, 2013

Fed policy outlook looks increasingly fluid, including changes in the consensus on the leading candidate for next Fed Chair. There has been increasing speculation around changes to the so-called “Evans Rule”—the Fed’s commitment to keep short-term interest rates low as long as the unemployment rate remains above 6.5%. For the upcoming FOMC meeting, we think a likely outcome would be emphasis that the QE tapering decision will depend on the inco…

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…

U.S. rates – Forward guidance taxonomy

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

…bank will behave in the future differently than it has behaved in the past. Look for the market’s heavy reliance on the SEP forecasts to fade over time. At this week’s meeting, most observers (ourselves included) expect the FOMC to drop its 6.5% unemployment threshold and revert to a more qualitative form of forward guidance. This will be a symbolically important step, but is unlikely to provide much new information about the outlook for the fu…