The Daily Update: FOMC Lean / Sunak's Worries

Yesterday’s FOMC statement showed no real big surprises, in fact in the Q&A session after the policy statement Powell said, ‘you can expect us to drag our feet a little, because that is what you do with statement language’. However, there was a definite lean to a more hawkish outlook. The dot plot showed a move higher on the members views on future Fed funds rate. Three members added at least one hike to their 2022 plot, meaning there were 7 calling for a hike next year versus 11 staying put. However, Powell said later that market participants should take the dot plot with a ‘big grain of salt’.

On tapering, Powell confirmed that the Fed ‘talked about talking about tapering’ but he gave no obvious signal on the timing of any announcement or reduction on bond buying. He said that assuming progress continued ‘it will be appropriate to consider announcing a plan for reducing our asset purchases at a future meeting’ . Powell was at pains to stress that the Fed would give ‘advance notice’ on any decision but that a decision would depend on data, not on the calendar. He stressed that the Fed intends for a future adjustment to asset purchases to be ‘orderly, methodical, and transparent’ and that the Fed wants to give as much transparency as possible, adding that they see ‘real value’ in communicating well in advance the beginning tapering.

We also had the UK’s Chancellor of the Exchequer Rishi Sunak yesterday mirroring the BoE’s Andy Haldane recent worries that inflation was starting to look ‘pretty punchy’. In an interview with the new news outlet GB News, he said rising prices was one of his near-term worries. ‘Of course, that’s one of the many risks it’s my job to worry about’, he said, adding ‘As interest rates and inflation change, that has an impact on our debt’. His concerns come after Make UK, which represents over 20,000 firms across manufacturing, engineering and industry in the UK upgraded its forecast for 2021 growth from 3.9% to a China-esque 7.8%.