FOMC meeting outcome to be neutral on the policy stance – Standard Chartered

Sonia Meskin, US economist at Standard Chartered, suggests that they are expecting the May FOMC meeting outcome to be neutral on the policy stance as they anticipate additional operational guidance, which could be liquidity-positive but would not have any implications for the policy stance.

Key Quotes

“Operational considerations: We do not expect a cut to the IOER, the rate of interest the Fed pays banks on excess reserves, in May. However, we do expect the Fed to acknowledge (likely in the press conference) recent money-market volatility, including the overshoot of IOER by the effective fed funds rate (EFFR) – the first since the IOER was introduced in October 2008. These moves were likely temporarily exacerbated around the 15 April tax deadline and should abate in the coming weeks.

We therefore expect Chair Powell to express the Fed’s readiness to lean against such an overshoot should it persist, but to state that it is not currently necessary. To reinforce this point, he is likely to lay out a range of tools the Committee could use should the EFFR overshoot persist, including an IOER cut, temporary open-market operations, a standing repo facility or an earlier end to the balance-sheet taper, currently projected for September 2019.”

“We stress that such measures would be purely operational, without implications for the policy stance. However, the Fed may have to do a good deal of explaining on this front, especially if IOER cuts are involved.”