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‘Plain English’.

Do you speak it?!

Ok, so the Fed hiked, the dots moved and the dovish forward guidance at the end of the statement was struck along with three whole sentences:

Redline

You could argue that striking that will actually give them more flexibility going forward, but I’d be willing to go out on a limb and say it does the opposite. Trying to turn these policy statements into something that any idiot can understand will invariably backfire precisely because when you go that route, any idiot will indeed start trying to understand them.

Cue Archer… “Who am I, an economist?! Just give me the broad strokes!

That’s not to say there’s something inherently desirable about having PhDs running the show and it’s certainly not to suggest that economics is a “hard” science (it’s not, and I should know). But it is to say that economists have been running this show for a long time now and I’m not sure you want a non-economist in the driver’s seat when you’re trying to mark a smooth transition away from a $15 trillion global experiment conducted and overseen by economists. Maybe unwind that first and then bring in someone like Powell. Don’t just hand him the keys to a laboratory full of mutant guinea pigs and expect him to know how to interact with those fuckers once he gets in there.

Amusingly, Powell seemed to take a swipe at the “old” (read: academic) style of monetary policy communication when he kicked off his presser by saying he was going to deliver a “plain English summary” of where things stand.

You know I to throw this in:

 

Anyway, Powell also announced that he will be delivering his “plain English” assessments after every meeting starting in January, thus confirming what WSJ reported on Tuesday.

He also claimed that doesn’t signal anything about policy – it’s purely an effort to enhance communication. Fed funds spreads were hoppin’ (again) on that announcement. As Bloomberg documents, ~25k FFN8/FFQ8 traded “over a 5 minute period shortly after 2:30pm ET, with 10.8k FFF9/FFG9 over same period.”

Apparently he’s not inclined to heed the warnings of the RBI’s Urjit Patel when it comes to balance sheet rundown which, according to Powell, is “proceeding smoothly” and will continue apace barring some absolutely crazy shit.

On the dovish side, he said he’s not ready to declare victory on inflation. So at least he learned something from listening to his predecessors.

As far as the IOER tweak is concerned, he brushed it off as technical and simply said it “has no bearing” on anything.

There was also this:

I’m not sure whether that’s hawkish or dovish.

The knee-jerk reactions across markets were predictable and were predictably faded (the combination of humans parsing what the algos parsed instantaneously and the press conference can end up leading to reversals). Additionally, it looks like a WSJ article “confirming” that Trump is moving ahead with his threat to scrap the Mnuchin truce with China on Friday hit the dollar:

DXY

The euro quickly reversed post-FOMC losses as the dollar gave up gains (remember, tomorrow it’s Draghi’s turn):

EURUSD

Same thing in gold:

Gold

Treasurys fell to session lows after the Fed before paring losses a bit.

10YYieldFOMC

The curve collapsed, with the 5s30s tightening inside of 25bps immediately following the decision:

5s30s

Choppy stocks, but ultimately the verdict was thumbs down:

ES

KBW Bank Index spiked to a session high, before giving it all back to close lower:

BKX

The Brazilian real was immediately (and predictably) hit on the Fed:

USDBRL

But trimmed losses after the BCB called for a third swap auction.

The ETF was looking really messy there for a minute:

EWZ

Same thing in EEM – quick move lower and then a partial recovery:

EEM

Finally, for your moment of zen:

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2 comments on “‘Plain English’.

  1. Anonymous

    So, the takeaway is that PhD Economists are mutant guinea pigs ? I thought as much….

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