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Threading The Needle Between A Rock And A Hard Place

Nobody wants to be Jerome Powell right now.

This should be painfully obvious to anyone who's been paying attention, but on the off chance it's not, we wanted to quickly reiterate it ahead of the Fed: Jerome Powell is damned if he does and damned if doesn't on Wednesday. Over the weekend, in their Fed preview, Goldman wrote the following about the SEP: The SEP might well be the most dovish aspect of the meeting, and we expect a three tenths cumulative downgrade to the median GDP growth projections, a one tenth downward revision to the median NAIRU estimate, and dovish revisions to the dot plot that drop a hike from the 2019 baseline (such a change would require two additional participants projecting that pace or slower). In terms of the number of hikes in 2019, 2020, and 2021, we expect a median policy path of 2-1-0, down from 3-1-0 as of the September SEP. If so, the projected overshoot (vs. r*) would decline to just half a hike in 2020 and 2021. There are two key takeaways there and they are inextricably bound up with one another. It is (virtually) impossible for the Fed to deliver an unequivocal "dovish surprise" via the dot plot. Why is that all but impossible? Simple: Because the market is pricing in just 10bps of
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9 comments on “Threading The Needle Between A Rock And A Hard Place

  1. mfn says:

    So the Trump/McConnell/Brady tax cuts bought one quarter of 4.1% GDP in 2018, 2.4% GDP (if we’re lucky) in 2019, and trillion-dollar deficits for as far as the eye can see. That’s why they call it the Laughable Curve.

  2. Anonymous says:

    They missed an opportunity for real tax reform (Simpson Bowles) rather than the mainly tax cuts we got. They did it for the midterms not realizing that it weakened the 2020 chances. It is sad they put power and themselves over country.

  3. Harvey Darrow Cotton says:

    Prediction. The rate will increase tomorrow the 0.25%, because the Fed is super independent and Trump keeps his short-term scapegoat. The forward guidance will be that the Fed stuck the landing and we are totally at neutral now, the stock market will stage a huge rally tomorrow, and nobody will give two $#!t$ about dots being revised down a lot because the market doesn’t price in anything.

  4. Anonymous says:

    Great preview as usual. Wondering why Powell couldn’t deliver a dovish surprise by (1) delivering a surprise pause, citing data dependence (some combination of lagging econ data and subdued inflation with the prospect of disinflation) and thus preserving consistency, Fed “independence” and all of that and (2) giving relatively “hawkish” forward guidance (whether the market wants to hear it or not, but basically saying “the economy looks good for now, but we’ll pause again if we have to”, which would give market a double does of Fed optimism) by saying the dot plot comes down a hike for 2019 but Fed is otherwise “staying the course”, etc.

    • Anonymous says:

      Typo in the above: “double dose”. The idea being that, as highlighted in the article, the market is super sensitive at this point to the Fed feeding the slowdown narrative, and so keeping the 2019 path relatively stable would be a way for the Fed to push back and somewhat disingenuously ignore the slowdown data to help the market find its footing.

  5. […] Powell is damned if he does and damned if doesn’t on Wednesday,” the anonymous blogger for The Heisenberg Report summed up […]

  6. mfn says:

    Bianco has been wrong about almost everything for the last 4-5 months. Think his crystal ball may be broken.

  7. […] is damned if he does and damned if doesn’t on Wednesday,” the anonymous blogger forThe Heisenberg Reportsummed up […]

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