10Y dollar fed fomc

“The Data Doesn’t Even Matter”

So just a few minutes ago, I said that “basically, the message is that unless the S&P were to suddenly collapse, the Fed is going to hike.”

We all know it’s all about the market not the data (that is, the Eccles cabal is “S&P dependent” not “data dependent”), but that’s supposed to be implicit not explicit.

Of course it’s kind of hard to hide when you suddenly find yourself not necessarily too far behind the data curve, but woefully behind the curve when it comes to arresting a stock market rally that as of today comes complete with an IPO from a company whose claim to fame is disappearing your nude photos and superimposing dog noses on teenagers’ selfies.

So with that in mind, consider the following from former FX trader Mark Cudmore.

Via Bloomberg’s Mark Cudmore

Lael Brainard’s hawkish comments confirm that a March rate rise must now be the base case for investors, and it’s unlikely the upcoming data even matters.

  • Brainard is not only part of the Fed’s core, she’s arguably the most dovish member of it. When she sends a hawkish message, you need to pay attention
  • I didn’t believe a March hike was coming. I was wrong. Brainard’s speech wasn’t an anomaly -– Dudley had laid the groundwork already on Tuesday
  • It’s not a completely done deal, but investors must now be studying the calendar to see what could derail a March hike. How quickly things change. Only a week ago, we were debating what could be the catalyst to make March likely
  • The key inflation data came out last night and hardly presented a compelling case for monetary-policy tightening. In fact, the broad data picture has been more indicative of an economy that could probably cope with a hike rather than one at risk of overheating and in need of tightening
  • This implies that the Fed’s motivation for tightening is more related to the resilient sentiment of markets rather than data-driven. Perhaps annoyed by its failure to raise rates by more earlier in the economic cycle, it is now keen to hike whenever it’s confident it can get away with it
  • The corollary is that any data disappointment in the next two weeks will be unlikely to stop the Fed from tightening, and only a severe market correction will stop them acting now. And we haven’t seen one of those in more than a year
  • The consequences of a March hike are not yet fully priced. Many in the market will wait for Janet Yellen’s Friday message to confirm the plan. That may be prudent, but don’t look to the data calendar to save you
  • Always remember when trading, the only relevant question is “will they hike?” Not “should they hike?”

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