'Plenty of tricks up their sleeve': Here's what 4 experts think about the Fed's dismal economic forecast and extension of near-zero rates

The Federal Open Market Committee struck an "appropriately dovish" tone following its June meeting, the team led by Michelle Meyer, US economist at Bank of America, wrote Wednesday. Powell made it clear that near-zero rates would remain well into the nation's economic recovery, and that additional policies such as yield-curve control are still under discussion.

The central bank's overall language was little changed after months of unprecedented action, the bank said. While Powell expressed some optimism around stimulus implementation, the greater tone was one of continued concern.

"The Fed did note that financial conditions have improved, in part due to policy measures, showing some improved sentiment as a result of the stimulus," the team wrote. "That said, the underlying tone of the statement and the press conference was one of caution."

Lon Erickson, portfolio manager at Thornburg Investment Management, also homed in on future policy speculation. The Fed has so far been adamant that negative rates aren't under consideration, but Erickson sees such action as a potential next step if the Fed decides to target a specific yield curve.

"The Fed has plenty of tricks up their sleeve if they need to dazzle the economy some more," he said. "Here's what investors should count on in near term: some form of yield curve control while negative rates remain on the shelf."

The portfolio manager characterized the rest of the meeting as a "nothing burger," noting the Fed's "wait-and-see" approach is likely the best strategy until new economic data reveals just how impactful and long-lasting the coronavirus' toll will be. The central bank "has no more visibility than the rest of us as to how the economy will heal," Erickson added.

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The central bank was "ahead of the curve" in spiking interest rates to the floor in March and its latest, smaller move is similarly clever, Jason Reed, economist and finance professor at the University of Notre Dame's Mendoza College of Business, said.

May's hugely positive jobs report lifted markets and backed up investors' hopes for a quick rebound. Yet Friday's release is a single data point, and monetary tightening based on just the jobs report could easily backfire.

"The Fed's guidance, like always, will be contingent on the economic data coming in. And for now, that data suggests we should strap in for the upcoming recession," Reed said.

The FOMC statement's similarity to past releases reveals continued wariness toward the economic backdrop, Michael Feroli, chief US economist at JPMorgan, said in a Wednesday note. With little new data to go off of, even the Fed's latest economic projections are debatable.

"Arguably the unemployment forecast looks optimistic relative to their GDP forecast, and the PCE inflation forecast looks optimistic relative to their unemployment forecast," Feroli said. "To be sure, Chair Powell did emphasize the unusual degree of uncertainty attending to these forecasts."

The central bank should implement either outcome-based or date-based forward guidance to ease the economy through its rebound, the economist added. Doing so can eliminate the need for new policy tools and additional relief spending.

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