Three things to keep in mind at Powell’s press conference after the Fed meeting

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How many ways can you say “wait pattern”? Federal Reserve officials are expected to stay the course at the end of their two-day policy meeting on Wednesday. In the words of Fed Chairman Jerome Powell, the central bank is still “not thinking of thinking about” withdrawing from its loose monetary policy stance despite signs that the economy is booming.

The Fed has made it clear that it wants to react to hard data rather than these “signs” of a boom. The Fed’s policy interest rate remains close to zero. In addition, the Fed is buying assets worth $ 120 billion a month to support the economy. The first step in eliminating this accommodation will be for the Fed to “reduce” these purchases. Economists believe the decision to cut the rate is months away, although a minority believe the Fed could begin discussing the issue in June. Fed officials have said they want to see “additional substantial progress” in meeting their targets for full employment and 2% inflation before the cut. Fed officials want inflation to move above its 2% target for some time, and they don’t believe the economy will overheat. They believe that the spikes in consumer prices during the recovery of the economy will be transitory. “The Fed went to great lengths after the March FOMC meeting to convince bond investors that it was not thinking of changing its views on low inflation and low interest rates until 2023,” said Steve Englander. , Head of North America Macro Strategy at Standard Chartered. Bank. Persistent messaging has worked, some analysts said. Read: Debt Markets Receive Memo on Path of Likely Fed Rate Hikes Kathy Bostjancic, chief US financial economist at Oxford Economics, believes long-term interest rates will resume their rise in the next few weeks. She forecasts a gradual rise in yields on the 10-year Treasury BX: TMUBMUSD10Y to 1.9% by the end of the year. Fed officials will release a policy statement at 2 p.m. ET, followed by a press conference from Powell at 2:30 p.m. ET. Here’s a look at what economists and investors will be watching when the Fed meeting wraps up. Optimism Economists believe Powell will have to be more optimistic about the outlook. After all, economists see strong GDP growth over the next two quarters and expect next week’s April unemployment report to show another sharp rise in employment. “Powell is likely to continue his subtle shift on the outlook in a more optimistic direction,” based on his comment on “60 Minutes” that the economy appears to be at a tipping point, said Matthew Luzzetti, chief economist for Deutsche United States. Bank. But Powell is likely to emphasize caution about the current health crisis and that the economy still has about 8.5 million jobs below pre-COVID levels. Inflation Powell is likely to face many questions about inflation and the argument from former Treasury Secretary Larry Summers that fiscal stimulus is pushing the economy to grow too fast. “There have been some indications here or there from Fed officials saying they are aware that inflation could start to heat up sooner and are prepared to address that if that happens, but it is not part of the core message yet,” Avery said. Shenfeld. Chief Economist at CIBC World Markets. Economists believe the Fed is also sticking with its policy because it is concerned that the coronavirus pandemic is not over and they believe Powell can emphasize this point more clearly. Pandemic Risks “We believe Powell will validate our view that a de facto pandemic test exists, as well as the stated macro test to take the next steps in policy and policy communication,” said Krishna Guha, Vice President of Evercore ISI. “Powell is likely to emphasize that while vaccination progress is encouraging, adverse global virus developments and vaccinations of vaccines mean that the United States is not yet out of the woods in terms of pandemic risks,” Guha added. . US stocks DJIA, + 0.01% SPX, -0.02% were scheduled to open slightly lower as investors awaited the conclusion of the Fed policy meeting.