Fed Nods To March Hike, Sketches QT With Runoff ‘Principles’

Inflation in the world's largest economy is still "elevated," the January FOMC statement said. That's due in part to "supply and demand imbalances related to the pandemic and the reopening of the economy." That (somewhat euphemistic) description was unchanged from the language employed in December, when the Fed jettisoned the much maligned "transitory" characterization on the way to citing "inflation developments" in explaining a decision to accelerate the wind down of monthly asset purchases.

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10 thoughts on “Fed Nods To March Hike, Sketches QT With Runoff ‘Principles’

  1. 15:00 “… inflation blah inflation blah inflation blah … “, SPY goes from green to red
    15:07 “… blah ‘wage price spiral’ blah ‘wage price spiral’ blah …”, SPY goes from red to redder 🙂
    15:10 “… blah inflation blah ‘the little people will still be able to eat’ blah inflation …”, SPY gets less red (Market senses the proper bag-holder has been found.)

  2. Keeps repeating situation different from 2015 etc.

    Reiterates “much stronger” economy with forecasted growth “well above” potential growth; labor market “much much stronger”, “very very strong”, “tremendously strong”; not expect supply chain issues to be resolved by end of year despite expected progress in 2H22 and “not making progress right now”.

    Meanwhile, his own forecast of inflation has increased slightly since Dec meeting.

    Repeats those differences will be reflected in policy. Declines to rule out 50 bp hike. Balance sheet reductions “sooner and faster” than last time, expect two more meetings to discuss BD reduction but “we are free to do this at any time”.

    Don’t see the dovish hints that Street was starting to hope for.

  3. Sigh. Another Fed meeting, another wild and wacky reaction by markets in their attempts to “parse” the communication. I know it’s traditional for the post-meeting market reaction to be a zombie dance, but good grief! Invariably, it seems the Fed chair says (or the statement notes) something logical and reasonable and fully expected, but what matters is how a disjointed irrational mob of professionals interprets it. Like today. “He just said there’s room for lots more hikes!” “No, I think he said he is unlikely to hurt the labor market.” “Hikes! Lots of ’em!” I’d like to think the folks driving the market in real-time were as dispassionate and analytical as H. But they aren’t. And don’t blame this one on retail either – we don’t read the announcement or watch the press conferences. 😉

    1. Yeah, retail was forced out on Monday around noon. The professionals, who’ve more or less been on the side lines since mid-Nov, have been the dip buyers this time around. I’d guess that retail investors won’t be back until the market looks more like what they’re used to, hopefully by March.

      Man, today was quite a ride!

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