The Federal Open Market Committee’s decision on the federal funds rate Wednesday will for the most part be a non-market-moving event, with the Federal Reserve looking to convey a consistent outlook on the direction of policy and rates.
While investors will be looking for an upgrade to the economic assessment, which they will receive, they will not get—either in the statement or in the news conference after the meeting—any hint of the start or the magnitude of the Fed’s tapering operations, which figure to begin early next year.
We expect the Fed to maintain its policy rate between a range of zero and 0.25%, with no changes to the central bank’s forward guidance with respect to asset purchases, overnight interest rates or interest paid on excess reserves.
Traders and investors may not get exactly what they want, but they will get what they need to confirm an economic boom, rates lower for longer and sustained valuations in equity prices.
In the news conference after the meeting, we anticipate that Federal Reserve Chairman Jerome Powell will continue to emphasize the Fed’s patience and the central bank’s outcome approach on its flexible average inflation target and its definition of full employment.
The only other area of the statement that may change is the language around inflation pertaining to energy prices. But that, in our estimation, would not be sufficient to alter the outlook of the Fed or the market with respect to the evolution of risk to the economy from the pricing outlook.
In addition, we do not expect any change to the Fed’s measured language around the public health crisis. Even though millions of Americans have been vaccinated this year, changes to the public health language will most likely wait until subsequent meetings.
For more information on how the coronavirus pandemic is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
