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FOMC preview: Ensuring ample liquidity will become increasingly important for the Fed – BBVA

On Tuesday, the Federal Reserve (Fed) will start its two-day meeting. The announcement on Wednesday is not expected to have significant changes. According to the Research Department at BBVA, the central bank will keep interest rates on hold unless there is a material change in their outlook. 

Key Quotes: 

“We expect the Fed to leave interest rates unchanged at their upcoming meeting. Recent economic reports, including labor market indicators and consumer price indices were in line with our scenario of slowing economic momentum and moderate but stable inflation. Moreover, we expect the Fed will continue to hold interest rate for the foreseeable future unless there is a material change in their outlook.”

“The Fed will also focus on guaranteeing the normal functioning of money markets by continuing its repo operations and outright treasury bond purchases. Ensuring ample liquidity will become increasingly important for the Fed as it tries to lend credibility to its shift to the “floor system”. For the time being, our view is that the Fed considers that by increasing reserve balances, it will be able to gradually transition away from repo interventions.”

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