State Street’s Chart of the Week – The "real" power of forward guidance

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State Street’s Chart of the Week - 7/28/2020

Please see below the latest ‘Chart of the Week’ from State Street Global Markets.

Ahead of this week’s Federal Open Market Committee (FOMC) meeting, Marvin Loh, senior global macro strategist, discusses the Fed’s approach to forward guidance and its impact on rates. 

“While the Fed has yet to formally introduce forward guidance during the current zero lower bound (ZLB) cycle, past experience shows that this approach will be successful in keeping targeted rates in check. Given the uncertain path of the economic recovery, rates have remained rangebound, even as the inflation outlook improved. This led to the collapsing of real yields as the offset to stable nominals. This is comparable to the 2011-2013 period, following the Fed’s last foray with explicit guidance, which lasted 18 months before the taper tantrum shook things up.”

The "real" power of forward guidance

State Street Chart of the Week - 7/28/2020

Source: State Street Global Markets, Bloomberg

 

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