The FOMC is now meeting for the first time with Janet Yellen as Chair. Goldman’s US team expects the FOMC to deliver an accommodative message…alongside a continued tapering of asset purchases. However, they note, their market views here are likely to shift little in response, as much of that dovishness is arguably already priced, particularly in US rates. SocGen notes that “qualitative guidance” will probably consist of two components: the FOMC’s forecast for the fed funds rate (aka “the dots”) providing a baseline scenario, and a descriptive component signalling the elasticity of this rate path to the underlying economic outlook. SocGen also warns that this transition is worrisome for inflation in 2015. But BofA suggests this is not problem as The Fed will indicate the US economy “lift-off” in late-2015 will save us all.
Via Goldman Sachs,
So, in summary, Fed will shift to highly accomodative (sounding) forward-guidance (because they’ve nailed their projections so well in the past), continue the taper come hell or high water, bonds are priced for this but stocks are not… inflation is a fear in 2015 but “escape velocity” growth will save us from that problem…