FOMC meeting recap: “Progress” toward taper, but not “substantial” yet
July 28, 2021 8:29 PM
With no updated economic forecasts at this month’s meeting, there were only two major areas of focus for traders: The monetary policy statement and Chairman Powell's press conference
As we noted in Monday’s FOMC meeting preview report, the Federal Reserve was never going to make any immediate changes to monetary policy at today’s meeting, but the event would still provide a valuable look into how the central bank is viewing the resurgence of COVID cases across the country and the ongoing elevated inflation readings.
With no updated economic forecasts at this month’s meeting, there were only two major areas of focus for traders:
1) Monetary policy statement
Unlike recent months, there were some noteworthy changes to the central bank’s monetary policy statement, and on balance, they were more hawkish (read: optimistic on the economy) than some traders were expecting.
Relevant changes to the statement include the following:
- Removed a reference to vaccinations “reduc[ing] the spread of COVID-19”
- Upgraded assessment of “sectors most adversely affected by the pandemic” from “remain weak” to “have not fully recovered”
- Path of the economy “depends on” the course of the virus, from “depends significantly”
- Added a comment that “the economy has made progress toward these goals [of maximum employment and price stability], and the Committee will continue to asses progress in the coming meetings” when evaluating when to taper asset purchases
The fact that the Committee felt comfortable highlighting the economy’s progress (though notably not the “substantial further progress” that Powell has outlined as a threshold for tapering) suggests that the central bank could theoretically still feel comfortable announcing its taper plans at the late-August Jackson Hole Symposium, rather than delaying them as some analysts had expected.
2) Chairman Jerome Powell’s press conference
In his ensuing press conference, Fed Chairman Powell (as usual) revealed a more nuanced and less dramatic view than the statement implied. Powell reiterated that the Committee expected inflation to drop back to the 2% range but could ultimately turn out to be higher and more persistent than expected. He also repeatedly noted that the inflationary comments in the statement represent a joint communication from all the members of the FOMC, suggesting that there may still be some disagreement about how transitory the current price pressures will ultimately prove.
Separately, Powell said that the economic data still had “some ground to cover” before meeting the threshold for tapering and that the central bank will provide advance notice before enacting any changes on that front. While it would be premature to rule anything out, these comments suggest that the central bank is more likely eyeing a September or November taper announcement, rather than at the August Jackson Hole Symposium.
The initial reaction to the release of the statement suggested that the central bank was a bit more hawkish than expected, with the US dollar rising, gold dipping, and the yield on the benchmark 10-year treasury bond ticking up 2bps. However, each of those moves had reversed by the time Chairman Powell took the stage for his press conference and as we go to press, the market’s reaction is more subdued. The most notable development is a touch of weakness in the US dollar, which after an initial pop, is now trading lower about 20 pips against its major rivals as traders bet against a taper announcement next month:
Source: StoneX, TradingView
Moving forward, traders will remain hyper-focused on incoming data, with inflation and labor market readings taking the most precedence. In that vein, Friday’s Core Personal Consumption Expenditures (Core PCE) release will be critical, with a hotter-than-expected reading likely needed to keep the door open on an August taper announcement.
How to trade with FOREX.com
Follow these easy steps to start trading with FOREX.com today:
- Open a Forex.com account, or log-in if you’re already a customer.
- Search for the pair you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels.
- Place the trade.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.