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No Change

29 January 2020 by jbchevrel

We have the Jan FOMC meeting outcome tonight. The FFR corridor will not change. IOER might change. Indeed, Dec minutes said it may become appropriate ‘at some point’ to adjust IOER closer to the middle of the target range. Hence why we might see a 5bp ‘technical adjustment’, bringing IOER up to 1.6%. But anyway, if they do it, firstly that’s not a big deal, and secondly, they will probably stress that this is not like a small rate hike etc… The OMO part might be a tad more interesting. In mid-January, the NY Fed left O/N repos at $120b, taking the 14d operations down slightly to $30b for February from $35b in January, while keeping the ‘non-QE’ bill-buying unchanged ($60b/m). On that, we have had no explicit communication on what they plan to do, going forward. That being said, Vice Chair Clarida suggested repos may be needed to support the market at least through the April tax season. The Fed has options. They can taper the sizes on the repos or they can increase the spread vs IOER, although the former seems more likely. Tonight, will also be the first meeting of 2020. On this occasion, it is worth noting that the voting 19/20 rotation seems pretty neutral for policy, going forward. For reference we will have Mester, Harker, Kaplan and Kashkari replacing George, Rosengren, Evans and Bullard. So basically, we lost the hawkish dissenters (George, Rosengren) but they will be replaced by Harker and Mester, also explicitly hawkish. Kashkari replacing Bullard seems neutral too. Both are historically uber dove, although both sound happy with the current level of rates. We are leaving CDX IG a tad below 47bp, quietly waiting for the Fed.