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Comment: FOMC leaves rates, forward guidance, asset purchase plans unchanged at June meeting

As expected, the FOMC left short-term rates unchanged at the June 9-10 meeting, did not revise the wording of forward guidance, and intended to continue “over coming months” to buy Treasurys and Agency MBS “to sustain smooth market functioning”. There were no dissents in the vote.

Changes to the June 9-10 statement language were minor and mostly reflected that conditions have shifted from using monetary policy to address the first wave of impacts from the COVID-19 pandemic to continuing to do what the FOMC can to mitigate the economic downturn and harm to the labor market. The statement said, “Financial conditions have improved, in part reflecting policy measure to support the economy and the flow of credit to US households and businesses.”

The Summary of Economic Projections (SEP) had its first public update since December 2019. The sharp downward revisions were consistent with the severity of the challenges facing the economy as the US struggles to find the right balance between quarantines and business activity. The risks to the outlook are unusually high and policymakers’ forecasts took that into account. It is well to be particularly cautious in reading the SEP and drawing conclusions as to the outlook for rates. It is clear that at the present time the FOMC is not anticipating lifting rates any time soon in spite of anticipating a rebound in growth in 2020. It will take time for the unemployment rate to return to something nearer normal and inflation to regain its upward momentum.

Please see the Whetstone Analysis Reference Library for fuller history of FOMC rate decisions including the evolution of forward guidance, and a summary of the large scale asset purchase program (LSAP or QE).

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