FOMC decision: What to know in markets Wednesday

All eyes Wednesday will be on the Federal Open Market Committee (FOMC) as it wraps up its two-day policy-setting meeting.

This month’s FOMC meeting will yield a new policy statement, updated dot plot and a summary of economic projections. Fed Chair Jerome Powell will hold a virtual press conference at the conclusion of the event on Wednesday.

“Given the consistency of Fed comments since the April meeting, we expect few new policy developments at the June FOMC meeting,” Nomura economist Lewis Alexander wrote in a note June 5. “Instead, the Committee will likely focus on successfully implementing their already-announced credit facilities and continue discussions on the longer-term outlook for asset purchases and forward guidance.”

Economists predict few changes to the Fed’s policy following this week’s meeting. The central bank will likely keep its target range for the federal funds rate between 0% to 0.25%.

“We believe the Committee’s forward guidance on the path for the target range will be unchanged from the April FOMC statement. However, next week’s new interest rate forecast ‘dots’— the first since December—could be seen as a soft way of reinforcing that guidance,” JPMorgan economist Michael Feroli wrote in a note June 5. “We look for the median dot to show no hikes through late 2022, the end of the forecast horizon. While we believe the Committee will eventually refine the guidance in the FOMC statement, recent comments from Vice Chair Clarida suggest this step won’t be taken until the fall.”

In response to the COVID-19 pandemic, the Fed deployed a slew of emergency actions over the past few months to support markets, and Powell has stated that the Fed still has more that it could do if necessary.

In addition, there has been recent speculation that the Fed would do yield-curve control (YCC), which is a program to keep short-term interest rates capped at a certain level. Despite the chatter, Wells Fargo argued that YCC will be unlikely in June.

“In our view, the current conditions do not signal an immediate need for the FOMC to implement an explicit yield target at any point on the curve,” the firm wrote in a June 1 note. “The Federal Reserve is still working to get all of its previously-announced facilities fully operational. We think the committee may want to allow some time for all of these facilities to help the flow of credit to households, businesses and state & local governments before considering yield curve control.”

Reprinted from Yahoo Finance, the copyright all reserved by the original author.