What TD are expecting from the Federal Open Market Committee

  • We don't expect any substantive new signal yet on tapering-or tightening-even as the tone on the economy is more positive than in March.
  • We expect the signaling to evolve over time as the recovery proceeds, and we just changed our forecast for the start of tapering to March 2022 from September 2022, but we expect officials will be reluctant to say anything that could be construed as a tapering countdown signal until much later this year.
  • We don't expect the Fed to announce any changes in the IOER or RRP rates ... although increases are likely before too long due to downward pressure on money market yields from growth in bank reserves. Such changes, if they occur, should be viewed as technical adjustments.
  • With Powell staying as far away as possible from even giving a hint of taper, currency markets may find little to sink their teeth into at this meeting. Rates markets have pulled forward the first Fed hike to March 2023; any sooner seems like a rather high bar to overcome at this point.
  • We think a directional impulse in much of the FX complex is lacking. We think EURUSD may loosely be anchored between the 100/200dma ahead of the meeting.


Explainer if needed ... these via info from the Fed:


  • Commercial banks must adhere to regulations, including so-called reserve requirements. That is, banks must hold a certain fraction of their deposits as cash in a Federal Reserve account; these are known as "required reserves." Banks can choose to hold even more cash in those accounts than what the Federal Reserve requires; these are known as "excess reserves."
  • ... required reserves are quite stable and grow as a constant fraction of total deposits in the banking system. But excess reserves increased considerably in 2008, as the Fed expanded the money supply to finance unconventional monetary policy measures such as quantitative easing.
  • In normal times, excess reserves aren't profitable, as they don't earn a return. Instead of holding cash as excess reserves, banks could lend those funds and earn interest. However, after the 2008 recession, the Federal Reserve started paying interest on excess reserves (IOER). By altering the incentives for commercial banks to extend loans or hold excess reserves, the Fed is able to use the IOER as an additional monetary policy tool.


  • Temporary open market operations involve short-term repurchase and reverse repurchase agreements that are designed to temporarily add or drain reserves available to the banking system and influence day-to-day trading in the federal funds market.
  • A reverse repurchase agreement (known as reverse repo or RRP) is a transaction in which the New York Fed under the authorization and direction of the Federal Open Market Committee sells a security to an eligible counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future. For these transactions, eligible securities are U.S. Treasury instruments, federal agency debt and the mortgage-backed securities issued or fully guaranteed by federal agencies.