Cautious optimism of the Fed: no rush to act, no specific orientation on tapering

The Federal Reserve (FED) is expected to maintain its accommodating speech at the next Committee meeting (FOMC) on April 27-28, 2021. The Fed is expected to revise upward its assessment of the general state of the US economy after the publication very good macroeconomic data in recent weeks (on employment and on the sectors most affected by the pandemic) and due to a vaccination campaign ahead of forecasts. That said, the Federal Reserve should maintain a very cautious posture, especially given the level of uncertainty regarding the Covid-19 crisis. President Powell is expected to reiterate that members must note “substantial further progress” on jobs and inflation before normalizing their policy. The FED should also not change its communication or give indications as to when it will reduce its purchases of Treasury securities and mortgage-backed securities (MBS). This announcement should be made in the second half of the year (June meeting at the earliest, most likely at the Jackson Hole symposium in August). Mr. Powell will also stress that the completion of “quantitative easing” is a necessary condition before the Fed considers a rate hike. Overall, we expect a more bullish tone, but we don’t think this will have a significant impact on the markets unless Mr Powell signals that the time to reduce the amount of buying has arrived. But then again, we don’t think that will happen at this meeting.