FOMC

FFR & IOER left unchanged

Maintains asset purchases at current pace (USD 80bln of USTs)

"indicators of economic activity and employment have strengthened amid progress on vaccinations and strong policy support"

~ @Newsquawk

Eurodollar futures continue to fully price in first fed hike in March 2023, after Fed statement

Dollar index reverses gains on FOMC statement, last down 0.07% on the day to 90.835

US treasury yields reverse direction and are now lower after Fed statement, 10-year yields last at 1.640%

Link to live @tradingview screencast for those without charts:

https://uk.tradingview.com/chart/zZdLVtAt/ 

(works on mobile too)

Team @Newsquawk on point as per usual. https://twitter.com/newsquawk/status/1387470281724370945

Eurodollar futures price in more than 90% chance of Fed hike in December 2022

Powell's Presser Begins

Link to watch:

The recovery remains uneven, remains incomplete.

The worst-affected areas of the economy have improved.

Spending on services has picked up

Vaccinations should allow return to more normal this year.

Conditions in the labor market have continued to improve.

The unemployment rate remains high.

The 6% unemployment rate understates the job gap.

Inflation to rise somewhat further before moderating

The spending pickup to boost prices, likely temporarily

The 12-month measures of PCE inflation in the near term is expected to exceed 2%.

Near-zero rates appropriate until goals met.

A transitory increase in inflation this year does not fulfill the criteria for raising interest rates.

The economy is a *long way* from our goals

Significant development is expected to take *some time* to accomplish.

Treasury securities will begin to grow by $80 billion a month.

Now is not the time to begin discussing tapering.

~ Stocks liking the ramming home of 'no taper on the current horizon' chat

Economic activity havs just recently picked up, will take some time to meet that bar

It is not time to begin discussing tapering of asset purchases

The economy can't fully recover until people feel it's safe to resume activities.

Controlling virus is most important factor to recovery

There is no monitor for liftoff or taper in relation to the virus.

It is doubtful that we will see a sustained increase in inflation as slack remains in the labor market

It would take time to move inflation expectations up, would expect that to come with strong labor market.

US 10-year treasury yields drop sharply to session low of 1.615% as Fed's Powell speaks

We are very worried about scarring in labor market.

So far, we haven't seen that kind of scarring.

It's going to be a different economy.

Just leaving this here.. https://twitter.com/PriapusIQ/status/1387336448379179009?s=20

It seems quite unlikely unemployed service-sector workers will quickly find work.

We are watching housing prices carefully. The rise is because of low inventory, strong demand.

The housing sector is clearly the best it's been after the financial crisis.

Rise is because of low inventory and strong demand

Clearly strongest housing market since financial crisis

Wages are unlikely to rise, that would be something seen in a tight job market

During the previous expansion, labour supply increased.

I expect workers to return to work in order to fill positions, and that perhaps pay will rise as a result.

It could take months to re-establish the labour supply and demand equilibrium.

Eurodollar futures slightly paring bets on Fed rate hikes, but no change in time frame so far

~ A look at yields:

The economy is gaining positive traction.

During time of reopening we are likely to see upward pressure on prices, but it will be temporary.

An episode of one-time price increases is not likely to lead to persistent inflation

One-time price rises as the economy reopens are unlikely to result in persistently strong inflation, which would be contrary to the Fed's objectives.

If we do see inflation expectations materially above 2% would use tools to bring it down.

Base effects carry no implication for the rate of inflation.

The base effect would add around 1% to headline inflation.

Eyes on the markets

~ Link to follow the charts: https://uk.tradingview.com/chart/zZdLVtAt/ 

We're in close touch with industries on bottlenecks.

Bottlenecks, by nature, are things that will eventually be resolved.

Bottlenecks in supply chains that increase prices do not call for a change in Fed policy. It's hard to predict how long they will linger.

A string is not one really good employment report.

We are a long way from our goals, and we don't need to get all the way to our goals to taper.

~ don't get excited by that last line, as @Yogi_Chan notes on the @Newsquawk mic, it's nothing new.

Archegos risks didn't rise to a systemic level.

Powell when asked about a central bank digital currency: We feel an obligation to understand the tech and policy issues very very well.

We need to see if that will be a good thing for the people we serve and understand how a DC would work in the US.

With the dollar as the world's reserve currency, less concerned that another country would have a digital currency first.

Inflation expectations are now more consistent with Fed's 2% inflation target than pre-pandemic.

Breakevens are at levels pretty close to mandate consistent.

The supply side will take time to adapt to a strong surge in demand.

Some asset prices are high.

~ Stocks not a fan of that comment..

Leverage in the financial system is not a problem.

Funding risks are low.

The overall situation of financial stability is mixed, but it still is manageable.

We do expect further downward pressure on short-term rates.

At this point did not see a need to adjust IOER.

The Federal Reserve's fund rate has remained within its target range.

Powell when asked about capital requirements for banks: US banks made it through a real stress test very well. Capital in the banking system is in a good place.

We are looking at ways to make money market funds and corporate bond funds more resilient.

Powell on treasury market structure: Dealers committing less capital than they did 10-15 years ago.

There are some questions about treasury market structure, work is being done to see if there's something we can do about it. For the sake of our economy, it must work properly

The Treasury Department will be in charge of the treasury market structure review.

Powell when asked about MBS purchases: They are closely related to treasury market.

The Fed will taper asset purchases when the time comes.

What we have seen is not close to substantial further progress.

We conclude with a link to the elite @Newsquawk highlight reel -

https://newsquawk.com/headlines/snap-analysis-powell-press-conference-sticks-to-the-script-provides-no-taper-signal-28-04-2021

And a final look at the markets -