Fed Hikes: New Dot Plot, Projections, Red Line, Analysis

Ok, start your engines ladies and gentlemen, it’s time for the main event (to mix sports metaphors).

Hopefully you’ve read all of the various Fed previews available here and everywhere else by now, because if not, it’s too damn late. But if you’re the type who likes to go back and compare what everyone was saying to what actually happened, there’s a quick rundown of Wall Street’s expectations here and a longer version here.

Obviously, you’re looking at the dots (three or four hikes?) and also at the statement to see whether the dovish forward guidance (i.e., “the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run”) is removed. Also, parse the presser for any clarity on the IOER tweak.

It’s always worth taking a second to assess how things have evolved since previous meetings, and in that regard, here’s the breakdown from Goldman on the econ front:

DataSinceFed

As far as markets are concerned here’s the dollar:

FedDXY

The dollar short has been trimmed as the greenback surged:

USDshort

(Goldman)

10Y yields hovering below 3% after hitting their highest since 2011 several weeks back:

10YYield

Reals:

Reals

2s10s flattest since 2007 intraday on Wednesday (h/t Brian):

2s10s

(BBG)

Spec short still massive:

Specs

(BBG)

Oh, and notably, this:

BadEMFX

And without further ado, here are the bullet point highlights, the dots, the projections, the redline and the statement.

  • Fed Raises Target Range For Benchmark Rate 25 Bps To 1.75%-2%
  • Fed: labor market continued to strengthen, job gains strong
  • Fed: economic activity rising at solid rate, unemployment fell
  • Fed: spending picked up, investment continued to grow strongly
  • Fed: longer-term inflation expectation gauges little changed
  • Fed: further gradual hikes consistent w/ 2% inflation, growth
  • Fed median estimate rises to four total 2018 rate hikes
  • Fed median shows funds rate at 2.4% end-2018, 3.1% end-2019
  • Fed median rate at 3.4% end-2020, long-run rate unch at 2.9%

Dots

June

Dots

March

Dots

Projections

June

SEP

March

SEP

Redline

Redline

Statement

Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

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2 thoughts on “Fed Hikes: New Dot Plot, Projections, Red Line, Analysis

  1. excellent work Mr. H.
    i was short IEF via puts.
    i couldn’t watch (took a nap of all things), well i’m awake now and feel DAMN lucky.
    off to the bar i go. i don’t think i will be doing that anymore.
    thanks for all your hard work.
    sb

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