US | Fed drops easing bias, and forward guidance

Summary

The hurdle for additional easing is now considerably higher than it was earlier this year, while the possibility of future rate hikes can no longer be dismissed if inflation fails to resume its path toward target.

Key points

• Key points:
• The fed funds rate was unanimously left unchanged at 3.50-3.75%; Warsh’s debut policy statement was “a bit shorter” and “a bit simpler”.
• Most importantly, the Committee removed not only the easing bias that drew three dissents in April, as expected, but also all explicit forward guidance.
• The stripped forward guidance from the scaled-back statement was removed only for the hawkish dot plot to deliver the exact guidance Warsh likely wanted to avoid.
• Such removal may have reflected not only Warsh’s long-standing skepticism toward such tools, but also the difficulty of forging consensus around a neutral policy signal.
• While we still expect the Fed to hold rates steady for the rest of the year, the shifting balance of risks has introduced an upside bias to our outlook.

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