Fed Keeps Rates Steady, Grows Cautious on Inflation; Gold, USD, Yields Await Powell

On quantitative tightening, the Fed announced plans to start tapering in June the program by which it gradually reduces its balance sheet. According to the details, the monthly pace of runoff will be cut from $60 billion to $25 billion for Treasury securities, but the existing cap on agency mortgage-backed securities will stay the same for now.

In terms of forward guidance, the committee stated that it “does not expect it will be appropriate” to dial back on policy restraint “until it has gained greater confidence that inflation is moving sustainably toward 2%”. This echoes the message conveyed in March and signals little appetite to pivot to a looser stance soon, possibly implying that the first-rate cut of the cycle may not occur until September or December.

No fresh macroeconomic projections emerged from this meeting; the next batch is scheduled for June, but Powell is likely to provide further clarity on the central bank's forthcoming actions during his press conference. Meanwhile, gold and the U.S. dollar have consolidated their pre-announcement bias after seesawing a little bit, but with price swings largely contained. Volatility, however, could pick up once Powell starts speaking at 2:30 pm ET.

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Source: Loan Digest (loandigest.net)

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