THE FED IS IN “WAIT AND SEE” MODE, BUT KEEPS THE DOOR OPEN TO ADDITIONAL MEASURES
As widely expected the FOMC does not foresee any rate increase before end-2022, or using Chair Powel words: “We are not thinking about raising rates. We are not even thinking about thinking about raising rates”
- The Fed expects quite a strong rebound, but the severe disruption caused by COVID will require rates to remain at near zero until 2022. The unemployment rate will remain high for long.
- The May employment report was a pleasant surprise, but also an indication on how unpredictable is the outlook. This warrants waiting and learning from new data before adapting the stance.
- Anyway, Chair Powel renewed the commitment to use aggressively all the existing tools; bond purchases will continue at least at the current pace. Further instruments, like yield curve control are being discussed.