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INSTANT VIEW 2-FOMC: Accelerated growth seen, only slight change in tightening outlook

· 03/17/2021 14:25
INSTANT VIEW 2-FOMC: Accelerated growth seen, only slight change in tightening outlook

- The Federal Reserve on Wednesday projected a rapid jump in U.S. economic growth and inflation this year as the COVID-19 crisis winds down, and repeated its pledge to keep its target interest rate near zero for years to come.

STORY: nL1N2LE1D0

STATEMENT: nW1N2K302F


MAIN POINTS:

** Fed leaves key overnight interest rate unchanged at 0-0.25%, says committed to using full range of tools to support economy

** Fed will continue to increase bond purchases by at least $80 bln/month of treasuries and $40 bln/month of mbs

** Fed says indicators of economic activity and employment have turned up recently following a moderation in the pace of the recovery

** Fed says inflation continues to run below 2 percent

** Fed says will conduct overnight reverse repurchase agreement with a per-counterparty limit of $80 billion per day, effective march 18, 2021

** Fed policymakers continue to see no rate hikes through 2023: median forecast in summary of economic projections

** Four Fed policymakers see liftoff in fed funds rate from zero in 2022, seven see liftoff in 2023

MARKET REACTION:

STOCKS: The S&P 500 .SPX initially reversed a 0.5% loss and was last down 0.22%


BONDS: The 10-year U.S. Treasury note yield US10YT=RR slipped to 1.6620% and the 2-year yield US2YT=RR slipped to 0.1390%


FOREX: The dollar index =USD turned 0.32% lower, from slightly higher before the statement

COMMENTS:

PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO

"Basically my read on it is by their take the economy is doing well, and they're confirming they're not going to be raising rates anytime soon and will allow the economy and financial markets, for that matter, to run hot for a while.

"Part of (stocks paring losses) is because the Fed is staying out of the market. They're not looking to increase rates or anything like that and, in the back of the market's mind at least, that was a possibility."

"To me the surprise move has actually been in high yield. It was negative and has flipped over positive and so for us that is a very good sign of risk appetite and it remains pretty strong."


BRIAN COULTON, CHIEF ECONOMIST, FITCH (email)

"The Fed does not seem worried at all about the rise in inflation expectations signaled by the bond market. Despite the reference to the recent upturn in activity data, a 2.3 pp increase in their 2021 GDP growth forecast and a 2023 unemployment forecast of 3.5%, there is no hint at any change in policy trajectory. A clear majority of the dots (11 out of 18) still see no rate hike even by end 2023. When the facts change this much and policy guidance doesn’t move at all it’s pretty clear the Fed’s reaction function has shifted."


MAZEN ISSA, SENIOR CURRENCY ANALYST, TD SECURITIES, NEW YORK

"I don't think this is necessarily going to return the dollar to a downtrend." In order for that to resume the Euro needs to gather upside momentum. The European economy is very far from matching growth expectations in the U.S."


DAVID CARTER, CHIEF INVESTMENT OFFICER, LENOX WEALTH ADVISORS, NEW YORK

“The Fed statement today was more optimistic than some expected, they raised their outlook for both economic growth and the labor market. The market’s view of the statement is that it was fairly optimistic.

"More than anything now it’s the press conference where the more meaningful information is released. The statement can be impactful, but the press conference can often convey more important information about the Fed’s future plans. All eyes will be on the press conference and any discussion about the dot plot, tapering and tightening.

"Investors will want to understand if the recent fiscal stimulus plan has meaningfully changed (the Fed’s) outlook. The market will also want to know if the Fed is more worried about inflation rates or interest rates.”




(Compiled by the U.S. Finance & Markets Breaking News team)

((alden.bentley@thomsonreuters.com; +1-646 281-6041))