Fed Preview: Probably some technical adjustments, but no negative rates – ABN AMRO

The Federal Reserve kicked off on Tuesday its two-day meeting. Analysts at ABN AMRO do not expect any change in the monetary policy when the FOMC announces their decision on Wednesday. 

Key Quotes: 

“With the Fed already throwing the kitchen sink at the covid-19 downturn, we do not expect any change in policy at the April FOMC meeting which concludes tomorrow, beyond a possible technical adjustment to the interest on excess reserves rate from 0.10% to 0.15%. This rate had been lowered relative to the upper bound in recent years, but with the effective fed funds rate now near the lower bound, the Fed may want to bring it back closer to the mid-point of the 0.00-0.25% target range.”

“The Fed might adopt some additional guidance on asset purchases in its new policy statement. Having announced a ‘whatever it takes’-type commitment on 23 March to purchase Treasury securities (and other assets) in unlimited quantities, bond markets have returned to more normal conditions, with 10y yields settling in a 50-70bp range, having spiked briefly to nearly 1.30% in mid-March (prior to the Fed’s announcement). This has led to a significant slowdown in the pace of asset purchases, which have totalled $2.2trn since early March.”

“One thing we do not expect at this meeting is a move to negative rates. Analysis and commentary published by Fed officials has consistently signalled opposition to negative interest rates in the US, and we do not expect that calculus to have changed.”