First Fed meeting after Powell milestone

The Fed will announce the decisions of the September FOMC meeting tomorrow, which started today. (Tera Yatırım)

The Fed is meeting for the first time since Chairman Powell announced a new monetary policy framework that allows inflation to exceed the target in the short term by keeping the inflation average of 2% over time. Although no action is expected at this meeting, we know that the Fed is in a position to signal no tightening. As Powell sets forth the basis and purpose of the new strategy in Jackson Hole, there will be no unexpected guidance. The main lines of the new policy strategy are to allow inflation to rise slightly above the target and not to tighten policy in this process… In other words, the fact that inflation exceeds 2% in the short term will not mean that the Fed will hike interest rates.


From the minutes of the last meeting, it is clear that the Fed is committed to maintaining an extremely broad monetary stance and is likely determined to keep the federal funding rate between 0% and 0.25% for several years. This meeting will also witness the "dot plot" and economic projection update. Although the data showing recovery in the USA is a plus for inflation, the demand concentrates more on the items to which people front more with the pandemic and the income uncertainty that will be caused by cash wage support cut may have downside risks. For example, the most important contribution to August inflation data came from second-hand vehicles. The reason for this is that people do not want to intervene in the community and they will prefer their own vehicles more while traveling ... An inflation outlook adjusted from such inorganic effects is more important and the policy makers aim to achieve this with an easy monetary policy.


Therefore, it would be a surprise to receive a hawkish message from the Fed. Regarding interest rate guidance, Fed members will not point to a near future. Increasing inflationary pressures will stimulate bond yields in the future, but since the Fed will probably not allow these rates to diverge from reference rates much, yield curve control may come to the agenda a few months later.

Kaynak Tera Yatırım
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