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The US Federal Standards Committee (Fed) will announce the results of the December decision-making meeting on Wednesday (early Thursday morning in Taiwan) and update its economic forecasts. The market expects that, benefiting from the arrival of vaccines, the long-term economic outlook is expected to be clearer, but we expect the Fed Investors adjusting their debt purchase plans may want to fail.
The market is still divided on whether the Federal Reserve will adjust its $ 80 billion bond purchase plan. Whether it is to expand bond purchases, acquire longer-term bonds, or maintain current speed but extend the implementation time of the bond purchase plan, any statement will affect investors’ sensitive nerves in the bond market.
Citi economists believe there is only a 25% chance that the Federal Reserve will announce an adjustment to its bond buying plan on Wednesday, while Bank of America economists predict that the Federal Reserve will only change its wording, but will delay it. After taking action, the Bank of America believes that current economic and financial conditions are not severe enough to persuade the Fed to further relax at this time.
However, Ian Lyngen, head of US interest rate strategy at the Bank of Montreal (BMO) in Canada, said: “Some people will be disappointed.” If the Federal Reserve does not change its bond purchase plan, it predicts that there will not be large fluctuations in the bond market because the Fed reiterates that it is ready to act.
Rick Rieder, Director of Global Fixed Income Investments at BlackRock, said: “The Fed’s policy will eventually be dovish. The current question is whether the Fed will become a pigeon or a super pigeon. When will the plan be implemented? Debt? I don’t think it is important to announce the extent of debt purchases at this meeting or later, because it is imperative. “
Rieder predicts that the Federal Reserve will eventually tighten its asset portfolio and increase purchases of US Treasuries to $ 100 billion. Current purchases of $ 40 billion mortgage securities will decline.
He said the Fed is very willing to buy more assets. They will discuss this possibility, but it may not be implemented.
Additionally, Rieder predicts that the United States will launch a new round of aid programs in the first quarter. Any stimulus measure will cause the US Treasury Department to issue more bonds. The Federal Reserve is waiting for a new round of aid programs.
Some observers believe it is more appropriate for the Federal Reserve to make adjustments to its debt purchase plans as the new round of bailouts progress, such as Goldman Sachs.
Goldman Sachs economists predict that the Federal Reserve may extend the weighted average duration of its bond purchase portfolio to curb the longer-term interest rates that affect mortgages and other loans. “We predict that the Federal Open Market Committee (FOMC) will adopt a results-based perspective. Guidelines, continue to buy debt “until full employment is achieved and inflation is on track to recover to 2%.” (In quotation marks) this sentence is equivalent to an increase in debt. softer interest rate. “
Diane Swonk, Grant Thornton’s chief economist, said the Fed should act prepared and not to change rashly, but to explain what circumstances will prompt the Fed to take action.
Swonk also predicts that the Fed will change the way it updates economic forecasts, with an explanation of the risks the forecasts may face.
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