Morning Notes — Fed Reaction

Today’s FOMC had been the primary focus for markets this week, but attention will quickly turn to tomorrow’s ECB meeting. Investors will be looking for clarity on how the ECB will handle the transition from the PEPP (Covid emergency QE expires 3/31) and the APP (remaining QE program with a current pace of €20B/month). Most assume the APP pace will simply be doubled to €40B, but that would still result in a 50% aggregate decrease in bond purchases beginning on 4/1.  A reduction of that that magnitude would likely result in higher yields. However, reports overnight suggest new ECB estimates will forecast a 2% inflation target in ‘23 and ‘24, which will provide cover to beef up the APP.