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19 Mar 2014
Flash: Will Yellen’s premier prove more dovish than current pricing? - JPMorgan
FXStreet (Bali) - John Normand, FX Strategist at JP Morgan Securities, shares his insights into what to expect from the FOMC.
Key Quotes
"Tapering should therefore advance this week with another reduction in asset purchases. The bigger issues centre on the Fed’s refresh of quarterly economic and rate projections plus any enhancements to the guidance framework. At the risk of cynicism, it seems tough to turn either into a market event for FX beyond a 24 or 48-hour move."
"On the FOMC’s economic and rate projections, the most important for currencies is probably the dots. But since money markets already price less tightening than the Fed (i.e. a 0.6% Dec-15 rate on Fed funds futures vs FOMC voter projections of about 0.70%) and since the FOMC would not lower their projections in an environment of a tightening labour market, it isn't obvious that Yellen’s premier would prove more dovish than current market pricing."
"Perhaps the guidance will be altered given the unemployment rate’s proximity to the 6.5% threshold, but as in the UK, these rhetorical tools should become less influential on currencies as they incorporate additional parameters. More variables mean that policy becomes less rule-based and more discretionary, just as it was in the pre- forward guidance era."
"If the Fed implicitly reverts to discretion through a broader guidance framework but still cannot predict well the behaviour of the labour market, financial markets will probably be driven more by actual data releases in coming months than a new rhetorical framework."
Key Quotes
"Tapering should therefore advance this week with another reduction in asset purchases. The bigger issues centre on the Fed’s refresh of quarterly economic and rate projections plus any enhancements to the guidance framework. At the risk of cynicism, it seems tough to turn either into a market event for FX beyond a 24 or 48-hour move."
"On the FOMC’s economic and rate projections, the most important for currencies is probably the dots. But since money markets already price less tightening than the Fed (i.e. a 0.6% Dec-15 rate on Fed funds futures vs FOMC voter projections of about 0.70%) and since the FOMC would not lower their projections in an environment of a tightening labour market, it isn't obvious that Yellen’s premier would prove more dovish than current market pricing."
"Perhaps the guidance will be altered given the unemployment rate’s proximity to the 6.5% threshold, but as in the UK, these rhetorical tools should become less influential on currencies as they incorporate additional parameters. More variables mean that policy becomes less rule-based and more discretionary, just as it was in the pre- forward guidance era."
"If the Fed implicitly reverts to discretion through a broader guidance framework but still cannot predict well the behaviour of the labour market, financial markets will probably be driven more by actual data releases in coming months than a new rhetorical framework."