[FOMC]Not as hawkish as expected – Market participants’ view – Bloomberg

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The US Federal Open Market Committee (FOMC) decided to keep its key policy interest rates unchanged at its regular meetings held on April 30th and May 1st. The decision was unanimous, making it the sixth consecutive meeting in which interest rates were left unchanged. The Fed signaled that it was again concerned about inflation and reiterated that it needed more evidence that the pace of price growth was slowing before it began cutting interest rates.

FOMC leaves policy rate unchanged as progress in calming inflation stalls

The views of market participants on this are as follows.

◎Chris Lowe of FHN Financial:

• The run-off of U.S. Treasuries (reduction in holdings due to redemption) has been reduced from the equivalent of up to $60 billion per month to $25 billion, much smaller than the expected $30 billion.The run-off pace for mortgage-backed securities (MBS) was maintained at $35 billion, equivalent to $35 billion, as regulators want to shift their holdings to U.S. Treasuries, and there have been very few refinances recently. The reason is that the amount is well below the upper limit.
• The portfolio run-off slowdown is not intended to signal the end of normalization is near or to alleviate the effects of quantitative tightening (QT).Authorities want to avoid disrupting the market and allow for more run-offs.

◎Neil Dutta of Renaissance Macro Research:

• The statement maintained a moderation bias. At the press conference, Chairman Powell acknowledged that the policy was suppressive of the economy.If policy is restrictive, we are more concerned about the downside risks to growth than the upside risks to inflation.

◎Brett Kenwell of eToro:

• It’s worth noting that while the FOMC may not have enough confidence to cut rates just yet, raising rates doesn’t appear to be on the table.Additionally, the FOMC’s plan to slow balance sheet run-off should be positive for bonds, and if officials feel they need to raise rates in the not-too-distant future, they probably won’t do so.

◎ Greg McBride of Bankrate:

• The FOMC has said it will slow the run-off pace of U.S. Treasuries to $25 billion per month starting in June. As less U.S. Treasuries are removed from the balance sheet, less Treasuries will have to be absorbed by the market.This will help keep long-term bond yields in check, which have soared so far this year.

◎Quincy Crosby of LPL Financial:

• The FOMC statement was less hawkish than market participants expected.There was no wording that hinted at the possibility of rate hikes, only that the forward-thinking market would keep rates high for longer than is comfortable.

◎Krishna Guha of Evercore:

• The basic message was that the rate cut was postponed, not derailed. Chairman Powell indicated he was open to the possibility of no interest rate cuts this year, and was not a unilateral dov. But compared to expectations, this is a much more subdued hawkish reset, and the (barely) base case is still in line with the idea of ​​two rate cuts, starting by September.However, depending on the progress of the economy, there is still a good chance that the interest rate cut will be delayed until after December.

◎Jack McIntyre of Brandywine Global Investment Management:

• Financial markets breathed a sigh of relief that the US financial authorities did not take a more hawkish stance. The only surprise was in the area of ​​quantitative tightening (QT) policy, which slows the pace of decline in US Treasury holdings.This adjustment means QT is likely to progress more smoothly, rather than ending soon.

◎Steve Sosnick of Interactive Brokers:

• Noteworthy was the slowing of the pace of quantitative tightening (QT) to compress the Federal Reserve’s balance sheet, which focused specifically on U.S. Treasuries and maintained the pace on agency bonds and mortgage-backed securities (MBS).
• Slightly dovish, balanced by acknowledging the lack of progress on the inflation front

◎Mr. Sonu Varghese of Carson Group:

• Federal Reserve Chairman Jerome Powell has repeatedly rejected the idea of ​​raising interest rates further, saying inflation has eased considerably and unemployment is very low, and dismissed the idea of ​​stagflation.
• The chairman believes that inflation is likely to continue to ease, and if the authorities are convinced that it is heading towards 2%, the next possible action could be to cut interest rates.
• The fact that inflation remains high means there will be no early rate cuts.At the same time, upward pressure on bond yields will ease as authorities slow down the pace of shrinking balance sheets (huge bond portfolios).

◎Mr. Joshua Jamner of ClearBridge Investments:

• Fed Chairman Jerome Powell struck a decidedly dovish tone in his post-FOMC press conference that day.
• The remarks suggested that the inflation rate so far in 2024 was higher than expected and that authorities were in a wait-and-see mode, adding that “to be confident that inflation is on track to return to 2%, This means that it is expected to take longer.In other words, the policy of maintaining policy interest rates at a higher level for a longer period of time remains in place.

◎Mr. Whitney Watson of Goldman Sachs Asset Management:

• The exceptional growth and inflation rates in the United States in the first quarter (January-March) suggest that the U.S. Federal Reserve is holding back on cutting interest rates; In the second quarter), authorities will spend time regaining confidence in disinflation.
• We see the downward trend in inflation as slowing, rather than derailing.When it comes to shrinking the Federal Reserve’s balance sheet, today’s decision to slow quantitative tightening (QT) is less a change in direction and more a sign of consideration for liquidity in the financial system.

◎Mr. Seema Shah, Principal Asset Management:

• With a string of strong inflation numbers, the Fed can’t pretend that the recent surprises in inflation are just temporary data fluctuations.Still, Fed Chairman Jerome Powell remains somewhat confident that inflation will decelerate from current levels, even if it has weakened in recent months, suggesting the hurdles for raising interest rates are quite high.
• But before the market overreacts, it’s important to remember that the US Federal Reserve, like the rest of us, will react to economic data as it emerges.Data from the next few months will be critical to the trajectory officials are charting.

◎Ian Lindgen of BMO Capital Markets:

• Quantitative tightening (QT) was the main theme of the FOMC statement in terms of policy.
• Note that the 2% inflation target and the Fed’s commitment to that goal appear four times in the statement: once in the first paragraph, once in the second paragraph, and twice in the third paragraph.While we know some in the market continue to believe that the Feds will reconsider their inflation target, the FOMC’s message on this topic has been very clear and was reaffirmed in today’s statement.

◎Jeffrey Gundlach of DoubleLine Capital:

• We believe that the basic scenario for U.S. monetary policy in 2024 is one rate cut.
• Fed Chairman Jerome Powell hopes inflation data will decline without raising interest rates
• It would be difficult to call the lack of progress in inflation temporary.
• Given the stability in employment data, I’m skeptical that the U.S. will enter a recession this year.

Original title:Treasuries Rally With Fed Not as Hawkish as Feared: Markets Wrap、DoubleLine’s Gundlach Thinks Base Case for 2024 Is One Rate Cut（抜粋）

(Updates with comment from Chris Lowe)