Pay No Attention To These Projections

“These projections do not represent a committee decision or a plan,” Jerome Powell said Wednesday, during his post-FOMC chat with reporters.

The new dot plot, which tipped two rate hikes in 2023, was variously described as surprisingly hawkish.

It’s important, I think, to take a step back and consider what it is we’re describing as “shocking” (on the hawkish side) these days. Rates are at the lower-bound. No one at the Fed sees a rate hike in 2021 despite two straight months of scorching-hot inflation. Some officials see a rate hike next year, but “some” just means seven. This situation is only “hawkish” relative to the most dovish policy stance ever witnessed (in the US context anyway).

To read some of the early color on Wednesday afternoon, you’d think 2023 was coming next month. As far as I can tell, 2023 is still the year after next. Nobody knows what the economy is going to look like by then. As such, the dots are meaningless, something Powell emphasized without using the word “meaningless.”

“We did not actually have a discussion” about liftoff, Powell said, of the June meeting. Such a discussion “wouldn’t even make any sense” right now, he added, reiterating that the dots “should be taken with a big grain of salt.”

It doesn’t get much clearer (or funnier) than that, but it won’t matter — you can expect “dot obsession” for at least the next couple of days, and perhaps longer than that. Powell often seems frustrated with the amount of attention the dots garner, which raises one obvious question: Why publish them?

Powell readily admitted that inflation has increased “notably.” It’ll likely remain elevated, he suggested, conceding that bottlenecks have proven to be perhaps more impactful than officials imagined, and even going so far as to admit that inflation “could turn out to be higher and more persistent than we expect.”

That said, he emphasized the Fed’s focus on a longer horizon when quizzed on whether surveys like the NY Fed’s consumer poll should be ignored. Longer-term expectations are consistent with the Fed’s longer-run goals, he noted.

Had the dots not stolen the show, the proceedings would have been dominated by the taper discussion. Apparently having heard enough in the way of riffs on his own joke, Powell said that when it comes to paring monthly bond-buying, “you can think about this meeting as the ‘talking about, talking about meeting.'” “We can retire that term,” he remarked, flatly. “It’s served its purpose I think.”

Naturally, Powell was keen to emphasize that the standard of “substantial further progress” hasn’t been met. In fact, it’s “some ways off,” he mused, in the course of assuring market participants (because, let’s face it, he’s not really speaking to reporters during these pressers, he’s speaking to traders) that there will be ample warning for… well, for anything and everything the Fed decides to do.

Donning his epidemiologist hat (and certainly not because he wanted to) Powell also said it was premature to declare victory over COVID.

In a refreshingly candid take, Powell reminded everyone (traders, economists and reporters inclusive) that “we have to be humble about our ability to understand the data” given the extraordinary nature of the circumstances. “We need to be patient,” he said.