The Daily Update: FOMC: Fear Of Missing Consensus

The conclusion of the FOMC meeting had no market impact as Chair Powell announced the US has made progress, but not "substantial further progress" towards attaining the goals that will allow for a taper.

Late in the press conference, Powell did give some hints at how the Fed is thinking about tapering MBS vs. UST purchases. Powell said there is “little support” for tapering MBS purchases before Treasuries, adding that he thinks the Fed will taper them “at the same time”. Powell also said that the idea of tapering MBS at a faster pace than Treasuries “does have some attractions for some people. Others not so much.” But he expects to discuss that progress further over coming meetings and we have three meetings left this year, 23rd September, 4th November and 16th December.

(As an aside with 149 days to Christmas, we are still in July are we not, and Pret are already advertising their Christmas sandwich; there's something not right about that. I think we all know that as you add to your years, life seems to fly by, however we really don’t need the management of Pret speeding up the process!)

Back on track, so the market now expects a tapering announcement in December and the Fed to enact early 2022, which is in line with our expectations.

The Fed also launched a new Standing Repo Facility (SRF) aimed at stemming potential liquidity problems in short-term money markets. They formally announced both a SRF and a Standing Foreign and International Monetary Authorities (FIMA) repo facility. Under SRF, maximum operation size is $500bn with a minimum bid rate set “initially at 25bp, somewhat above the general level of overnight interest rates”. Counterparties will be primary dealers and “will be expanded over time to include additional depository institutions”. The standing FIMA repo facility is initially set at 25bp with a per-counterparty limit of $60bn.

Obviously with the stress in money markets we have seen from time to time these new facilities should assist in the day to day workings of the market.

Enjoy the summer, Pret go !!!!