The decisions of the Fed’s June FOMC meeting, which started today, will be announced tomorrow. The main theme is how the Fed will schedule to start reducing asset purchases. In other words, on a policy statement basis, we will see if the Fed will give a verbal guidance on this. Considering that the Bank’s stance is focused on the temporaryness of inflation, it is not only on the basis of instruments. Central Bank is likely to pass without action on the basis of guidance. The improvement in the US economic conditions and increasing price pressures may start to lead the Central Bank to the stage of normalizing monetary policy in the future. It seems like the more appropriate option for the Fed to do this in a time frame towards the end of 3Q21. Inflation is not based on hypothetical situations; would have to be evaluated under more normal conditions.
The Fed’s unresponsiveness may be one of the conditions that will ease the market. By contrast, markets were torn between celebrating positive economic surprises and increasing the likelihood of tapering sooner than previously anticipated. It is possible that the Fed will evaluate the tightening in the coming period, but the opinion that the inflation has increased temporarily due to the effect of the items related to the opening is the baseline view of the Central Bank at the moment, and therefore, a timetable for this is not foreseen at the meeting tomorrow. A factor such as the fact that the findings on the spillover effect of the commodity rally caused by the shortage of supply in inflation cause stiffness, may force the Fed to take further action. The 10-year yield fell as low as 1.42%, made some upward moves and is stable now. If it was over 1.70%, we could say that the market is pushing the Fed, but now the stance seems to be taken for granted by the current conditions. Retail sales, May data will be announced today, need to show monthly cooling in the upcoming periods in order to cool down the items related with the opening in demand. However, it is still more likely that the main effect will come from the cost channel, high demand in tight supply conditions may cause problematic inflation. More evidence and persistence is needed to see a Volcker-era high in inflation of similar qualities.
For this reason, the June meeting is foreseen as an event where the Fed will remain in the middle in terms of communication and will not take an additional action. The dot chart, on the other hand, can more clearly show where we are heading in terms of the timeline, as it reflects the rate projections of Fed chairmen. While the median expectation points to 2023, we will look at how many dots will shift into 2022.
Kaynak Tera Yatırım
Hibya Haber Ajansı
Kaynak: Hibya Haber Ajansı
