Ok, here we go.
As a reminder, this all pretty much hinges on the outlook. Wednesday afternoon is one giant, crowd-sourced effort to “connect the dots” – as it were.
Simply put: if the Fed is truly “data dependent” then you’ve got to think still-subdued inflation should weigh on the optimists/hawks. If what matters now is not in fact the data (that is, if the reaction function is now more heavily skewed towards concerns about financial stability and the possibility that keeping rates too low for too long has served to embed so much risk into the system that it can no longer be ignored), well then they’ll “stay the course.”
“What people care deeply about now is the reaction function of the FOMC. Will the committee ignore the lack of inflation and press on with policy normalization for as long as easy financial conditions suggest the economy can cope?,” Bloomberg’s Mark Cudmore asked earlier today before posing the alternative as follows: “Or, given its official mandate, will the fact that core personal consumption expenditure growth has been in a clear and sharp downtrend all year mean that it immediately ends the hiking cycle?”
That is pretty much the question. But just because it’s what everyone will be debating doesn’t necessarily mean it’s what everyone will be trading. “I calculated every dot plot shift of rolling one- and two-year projected tightenings and compared that with the daily move in 10y and ED8 yields on the days of the announcement,” Cameron Crise proudly announced, in what amounted to a rebuttal of the notion that the market cares. “Downward shifts in the dot plot are pretty much par for the course, and there isn’t really a consistent market reaction,” Crise concludes.
Fair enough. Of course “this time could be different” to employ the tired old adage and although the balance sheet news is … well… old news, it could serve to supercharge things if the market determines that the Fed is coming across as “stubbornly” hawkish in the face of lackluster data.
And so without further ado, here the highlights, the redline, the updated dots, and the projections, in descending order…
Highlights
- Fed Forecasts Still Signal Another 2017 Hike, 3 More In 2018
- Fed keeps rates unchanged, starts balance-sheet runoff in oct.
- Fed: hurricanes unlikely to alter economy’s course medium term
- Four fed officials see no more 2017 hikes, unchanged from june
- Eleven fed officials see one more 2017 hike vs eight in june
- Fed: median federal funds est. 2.7% end-2019 vs 2.9% in june
- Fed median shows funds rate of 2.9% at end of 2020
- Fed estimate of longer-run funds rate 2.8% vs 3% in june
- Fed sees pce inflation 1.9% end-2018 vs 2% in june estimates
Redline
Dots June
Dots September
Projections June
Projections September
MOAR?