Rates Steady As Fed Policy Remains Unchanged

Fed keeps policy unchanged, rates steady

Swap rates and yields were virtually unchanged to close the day with short-term rates flat and long-term rates slightly lower. The 10y UST yield closed down 1 bp to 1.23%. As expected, the Fed kept its benchmark rate range unchanged at 0.0% to 0.25%, while also keeping the same rate of monthly bond purchases at $120 billion. The Fed’s statement reiterated that progress has been made toward the Committee’s goals economic goals for inflation and employment, but the economic outlook is heavily dependent on the developments of the COVID pandemic. The next FOMC meeting is scheduled for September 21 and 22, with investors eyeing the Kansas City Fed’s annual policy retreat in Jackson Hole in August for potential signals in policy shifts.

Powell confirms economic progress, but reiterates a ways to go

During his press conference, Chairman Powell confirmed the Committee’s view that progress has been made on the Fed’s economic goals toward inflation and employment, but “substantial further progress” will need to be accomplished before any policy change. Powell said that Fed officials had their “first deep dive” on how to scale down its $120 billion monthly bond purchasing program. However, no decision on exact timing was made, but Powell did say that markets will get plenty of advance warning before tapering will begin.

Senate agrees on a tentative infrastructure agreement

A bipartisan group of senators agreed on a tentative $550 billion infrastructure proposal with voting on the bill as soon as the weekend. The bill will require 60 votes to pass the senate and could pose a challenge for the legislation. Even if 60 votes are secured, the bill will still need to go the House for debate.