FOMC expected to remain dovish for the time being – UOB

Senior Economist Alvin Liew at UOB Group evaluates the recent FOMC event (Wednesday).

Key Quotes

“The Fed Reserve as widely expected, kept its policy rates and asset purchase program unchanged in its March FOMC, even as it significantly upgraded its GDP, unemployment and inflation forecasts.”

“While FOMC Chair Powell noted that “strong (US) data is in front of us”, and that the US avoided some of the very worst outcomes but warned that one should not be complacent and that the Fed will continue to provide support for as long as needed. He spelt out explicitly that the Fed is willing to look past transient inflation impact and the Fed will not react pre-emptively (in line with the Fed’s fundamental change in monetary framework, Average Inflation Targeting, AIT) and it will supply clear communication well in advance of any bond-buying taper.”

“Going forward, our base case remains for the Fed to stay on hold for most of 2021, at least, and the taper discussion will only start in late 2021/early 2022. This is premised on the continued successful rollout of vaccinations across the US, additional fiscal stimulus in the coming months (which have come to pass), and the subsequent reduction in COVID-19 infections and deaths with the return to economic/social normalcy in the foreseeable future. We continue to hold the view that the Fed will keep policy rates at the current 0.0-0.25% region at least until 2023.”