Skip to main content
logo
  • Products

    Investment Vehicles

    • ETFs
    • Commingled Funds
  • Investment Strategies

    Investment Options

    • Alternatives
    • Beta Strategies
    • Equities
    • Fixed Income
    • Global Liquidity
    • Multi-Asset Solutions
    • Commingled Funds

    Capabilities & Solutions

    • ETFs
    • Global Insurance Solutions
    • Liability-Driven Investing
    • Pension Strategy & Analytics
    • Outsourced CIO
    • Retirement Plan Solutions
    • Sustainable Investing
  • Insights

    Market Insights

    • Market Insights Overview
    • Eye on the Market
    • Guide to the Markets
    • Guide to Alternatives
    • Market Updates

    Portfolio Insights

    • Portfolio Insights Overview
    • Alternatives
    • Asset Class Views
    • Currency
    • Equity
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Portfolio Strategy
    • Sustainable Investing Insights
    • Strategic Investment Advisory Group

    Retirement Insights

    • Retirement Insights Overview
    • Guide to Retirement
    • Defined Contribution
  • Resources
    • Center for Investment Excellence Podcasts
    • Events & Webcasts
    • Insights App
    • Library
    • Taft-Hartley
    • Market Response Center
    • NEW: Morgan Institutional
  • About Us
    • Trusted Asset Manager
    • Diversity, Equity & Inclusion
  • Contact us
  • English
  • Role
  • Country
  • Morgan Institutional
    Search
    Search
    Menu
    You are about to leave the site Close
    J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
    CONTINUE Go Back
    1. FOMC statement & potential impact on fixed income

    • LinkedIn Twitter Facebook Line

    FOMC statement & potential impact on fixed income

    09/17/2020

    David Rooney

    Kelsey Berro

    Following the Federal Reserve’s (Fed) announcement, please see below for market views from the Global Fixed Income, Currency & Commodities Team (GFICC):

    The Federal Open Market Committee (FOMC) voted to maintain the Fed Funds target rate at the zero lower bound (0.00%-0.25%). The tone of the statement continued to reflect the elevated level of uncertainty regarding the future path of the economy, despite further recovery in the labor market.

    The majority of the changes within the statement reflected necessary adjustments given last month’s release of the Fed’s revised Long Run Goals and Policy Strategy.  As outlined in the new long run policy statement, the Fed stated that after persistently undershooting its inflation target during the previous cycle, it now seeks to achieve a modest overshoot of its 2% target so that inflation averages 2% over time, which will keep longer-term inflation expectations anchored at 2%.  The Committee stated that it expects policy to remain accommodative until both of these goals (average PCE inflation of 2% and anchored long-term inflation expectations) are met, in addition to achieving a level of full employment.  Additionally, the Committee stated that it expects policy rates to remain at zero until the labor market has achieved the Committee’s assessment of maximum employment and PCE inflation is at 2% and is on track to moderately exceed 2% for a time. Finally, the Fed will continue with asset purchases at least at the current pace in order to support the flow of credit to households and businesses.

    There were two dissenters at this meeting, Minneapolis Fed President Kashkari and Dallas Fed President Kaplan.

    Committee Statement

    We can break the statement into three parts:

    • Economic Assessment – The updated assessment highlighted the continued recovery in the economy, while maintaining a reference to the low level of activity compared to the beginning of the year. The assessment also continued to note easy financial conditions.
    • Outlook – The Fed views the path of the economy as highly dependent on the course of the virus and the risks to the outlook in the medium term.
    • Policy – The FOMC has committed to maintaining accommodative monetary policy until inflation averages 2% and longer-term inflation expectations are anchored at 2%.  The Committee stated that policy rates will remain at zero until the labor market has achieved full employment and PCE has reached 2% and is expected to rise modestly above 2% for a time. The Fed is also committed to maintaining the current purchase levels of U.S. Treasury, Agency Mortgage-Backed Securities (MBS) and Agency Commercial Mortgage-Backed Securities (CMBS).  The current pace stands at USD 80 billion (gross) per month in U.S. Treasuries, USD 40 billion (net) purchases per month in Agency MBS and USD 1-2 billion per month in Agency CMBS. In describing the purpose of the Quantitative Ease (QE) program, the goal of sustaining smooth market functioning was accompanied with an additional rationale of promoting accommodative financial conditions.

    Summary of Economic Projections

    Investors received participant’s outlooks for growth, inflation, employment and policy rates expectations through 2023.  While 2020 growth and inflation were revised higher and the unemployment rate was revised lower, the median of the committee remains committed to keeping rates at the zero lower bound through the forecast horizon.  The Fed’s new flexible average inflation targeting approach was codified with a forecast of 2% PCE in 2023 but with no forecasted rate hikes by the median of the committee.  The Fed’s long-run neutral rate of 2.5% was not changed.

    Chair’s Press Conference

    At the press conference, Chair Powell spent time discussing the implications of the recent update to the Fed’s Long Run Goals and Policy Strategy document. Specifically, the Fed’s forward guidance on interest rates which was updated to reflect the Fed’s flexible average inflation targeting policy. In addition, he recognized that the economy has recovered more quickly than previously expected, stated that levels remain well below pre-pandemic levels, and it would take a significant time to return to levels seen prior to COVID 2019. He noted that additional fiscal stimulus would be needed to address the many millions of people still unemployed and further promote the recovery.

    Chair Powell was asked about the QE program which is aimed at fostering accommodative financial conditions and supporting market conditions. He communicated that the current pace of purchases is appropriate and that they would be willing to adjust the purchases going forward but was not willing to provide scenarios where he would consider increasing or decreasing the pace of purchases.

    There were also questions on financial stability and what role it plays in monetary policy. He communicated that monetary policy should not be the first line of defense to address financial stability but rather should be addressed using regulation and macroprudential tools. At the same time, he noted that the Fed will not ignore any risks that impede the FOMC from achieving its goals.

    Our View:

    • We expect the Fed to keep policy rates at the zero lower bound and asset purchases in place for the foreseeable future. With unemployment still significantly elevated versus pre-COVID levels and future fiscal policy uncertain, more action will be needed from both fiscal and monetary policy makers.
    • In the absence of additional fiscal policy stimulus before the U.S. Presidential elections, we expect the Fed to introduce additional forward guidance or consider extending the average maturity of its U.S. Treasury purchases to promote further easing. For now, yield curve control will not be considered as long as interest rates can be managed through the Fed’s existing forward guidance and QE, for which they have indicated a preference.
    • We expect the Fed’s purchases of U.S. Treasuries and strong forward guidance to allow U.S. yields to trade in a moderate range, with less volatility than at the start of the year. Additional volatility in yields could re-emerge as we approach the U.S. Presidential election. In the meantime, we expect the 10-year U.S. Treasury yield to trade in a range of 0.5% - 1.0%.
    • Federal Reserve
    • Monetary Policy
    • Federal Open Market Committee (FOMC)
    • Economic Outlook

    RELATED ARTICLES

    FOMC Statement: May 2023

    Following the Fed’s announcement, find out latest market views from the Global Fixed Income Currency & Commodities (GFICC) U.S. rates team.

    Read more

    It’s Playoff Season for the Fed

    The stakes are raised as the Fed approaches the end of the hiking cycle. Making the case that the time to pause is now.

    Read more

    FOMC Statement: March 2023

    Following the Fed’s announcement, find out latest market views from the Global Fixed Income Currency & Commodities (GFICC) U.S. rates team.

    Read more
    J.P. Morgan Asset Management

    • About us
    • Investment stewardship
    • Privacy policy
    • Cookie policy
    • Binding corporate rules
    • Sitemap
    • Accessibility
    Opens LinkedIn site in new window
    J.P. Morgan

    • J.P. Morgan
    • JPMorgan Chase
    • Chase

    This website is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, an investor should seek individualized advice from personal financial, legal, tax and other professionals that take into account all of the particular facts and circumstances of an investor's own situation.

    Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.

    INFORMATION REGARDING INVESTMENT ADVISORY SERVICES:   J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. Investment Advisory Services  provided by J.P. Morgan Investment Management Inc.

    INFORMATION REGARDING MUTUAL FUNDS/ETF: Investors should carefully consider the investment objectives and risks as well as charges and expenses of a mutual fund or ETF before investing. The summary and full prospectuses contain this and other information about the mutual fund or ETF and should be read carefully before investing. To obtain a prospectus for Mutual Funds: Contact JPMorgan Distribution Services, Inc. at 1-800-480-4111 or download it from this site. Exchange Traded Funds: Call 1-844-4JPM-ETF or download it from this site.

    J.P. Morgan Funds and J.P. Morgan ETFs are distributed by JPMorgan Distribution Services, Inc., which is an affiliate of JPMorgan Chase & Co. Affiliates of JPMorgan Chase & Co. receive fees for providing various services to the funds. JPMorgan Distribution Services, Inc. is a member of FINRA  FINRA's BrokerCheck

    INFORMATION REGARDING COMMINGLED FUNDS: For additional information regarding the Commingled Pension Trust Funds of JPMorgan Chase Bank, N.A., please contact your J.P. Morgan Asset Management representative.

    The Commingled Pension Trust Funds of JPMorgan Chase Bank N.A. are collective trust funds established and maintained by JPMorgan Chase Bank, N.A. under a declaration of trust. The funds are not required to file a prospectus or registration statement with the SEC, and accordingly, neither is available. The funds are available only to certain qualified retirement plans and governmental plans and is not offered to the general public. Units of the funds are not bank deposits and are not insured or guaranteed by any bank, government entity, the FDIC or any other type of deposit insurance. You should carefully consider the investment objectives, risk, charges, and expenses of the fund before investing.

    INFORMATION FOR ALL SITE USERS: J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide.

    NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

    Telephone calls and electronic communications may be monitored and/or recorded.

    Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://www.jpmorgan.com/privacy.

    If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance.

    READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

    The value of investments may go down as well as up and investors may not get back the full amount invested.

    Copyright 2023 JPMorgan Chase & Co. All rights reserved.