January FOMC: Is helicopter money coming? – Standard Chartered

Sonia Meskin, US economist at Standard Chartered, suggests that while the FOMC kept rates on hold in January, but included some unexpectedly dovish elements in both its statement and balance-sheet plans.

Key Quotes

“Not only does the FOMC appear to have put the notion of further hikes on hold for H1-2019 and possibly beyond, but it may have effectively opened the door to rate cuts, alongside a sooner-than-expected halt to its balance-sheet (System Open Market Account, or SOMA) tapering programme.”

“Key dovish elements were the following:

1. After a pause, the next rate move could be a cut. The statement’s most dovish sentence, in our view, was: “…the Committee will be patient as it determines what future adjustments ´to the target range for the federal funds rate may be appropriate”. This was unexpected, and indicates that not only are rate hikes on hold, but a rate cut may be the Fed’s next move.

2.  SOMA taper may stop earlier than expected alongside possible rate cuts. Specifically, in the June 2017 Policy Normalization Principles and Plans, the FOMC stated that it would be ready to resume security reinvestments in case of a “material” deterioration in the economic outlook and “if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate”. But the January 2019 balance-sheet communiqué omitted these preconditions.”