Fra BNP Paribas:
Top questions ahead of the FOMC
1) Will the Chair announce press conferences at every meeting?
Chair Powell has said he was “going to be carefully considering” holding a press conference every meeting, but flagged that he “would want to think very carefully about it and make sure that no one would take more frequent press conferences as a signal of the path of policy.”
An announcement of this nature would likely come during a pre-scheduled press conference, and there has been recent chatter in the press on this topic from a few FOMC members.
A press conference every meeting would not necessarily imply a new summary of economic projections every meeting, which would still differentiate SEP meetings.
While the initial market reaction could be more hawkish, we would perceive such a move as relatively neutral, as it would just allow more flexibility in terms of the timing of rate hikes.
2) Will the Fed make any changes to its balance sheet policy?
We see this as unlikely, given the Fed’s emphasis that they would like to let the balance sheet run-down proceed relatively untouched.
Indeed, Chair Powell said in his March press conference that the balance sheet reduction is “proceeding smoothly,” and “barring a very significant and unexpected weakening in the outlook, [the FOMC does] not intend to alter this program.”
The median primary dealer expectation in December was USD 3.525 trn by end-2025, and 3.589 trn for other market participants.
3) Will the Fed make any adjustment to its forward guidance?
The May Minutes showed “some” participants noted it might be appropriate to remove “federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run” from the statement.
We think the Committee will likely move to cut this language at the June meeting. The Committee’s median forecasts as of March imply the fed funds rate hitting neutral by end-2019, suggesting it is a matter of when this language is removed.
4) Will the Fed include external risks in the statement?
Given movements in Italy, Argentina, Brazil, Brexit, and Turkey, it is possible the Committee could flag external risks in the statement, perhaps by saying that it is monitoring external developments closely.
Such an inclusion would be dovish, signaling that the Committee sees these foreign wobbles as potentially impactful of its outlook.
5) Will the Fed move to a more flexible inflation target?
The December Meeting Minutes showed “a few” participants interested in alternative policy frameworks, with an accompanying suggestion that further study could be useful. We did not hear any follow-up on this from the March meeting.
Bernanke has written of a temporary price-level targeting regime (wherein price targeting is adopted only during periods when fed funds is around the zero-lower-bound), while the SF Fed wrote an essay on pricelevel targeting in May of last year. Chicago Fed President Evans has long written on the same topic.
It is unclear what the immediate next steps would be in moving forward on alternative frameworks, given the existing amount of Fed studies and work around the topic already done.
Additionally, the greater emphasis on the Fed’s symmetry with respect to its 2% inflation target could be interpreted as something of a de-facto price-level target, at least in the short-term.
