Technical tweaks and dovish squeaks – Rabobank

Analysts at Rabobank explained that the FOMC kept the target range for the federal funds rate unchanged at 1.50%-1.75%.

Key quotes

"Powell repeated that it would take a ‘material reassessment’ of the economic outlook to change the current stance of monetary policy."

"Overall, the FOMC statement and Powell sounded dovish with a slight downgrade of household spending, a more explicit commitment to get inflation back to target, an acknowledgement of the serious nature of the Corona virus, and the acknowledgement of remaining trade policy uncertainty."

"The Board of Governors made an upward technical adjustment of 5 bps to the IOER rate and the ON RRP rate to force the effective federal funds rate closer to the midpoint of the target range."

"The FOMC directed the Open Market Desk to continue its purchases of Treasury bills at least into Q2, and to continue its term and overnight repo operations at least through April (instead of January)."

"While the Fed thinks it made a mid-cycle adjustment to the target range for the federal funds rate last year, the economic indicators suggest we are late in the cycle. Therefore, we expect the Fed will be forced to cut the lower bound for the federal funds rate all the way back to zero before the end of the year."