Aggressively Hawkish Dots Should Overshadow Fed Pause
The Fed on Wednesday pressed the pause button on the most aggressive rate-hiking campaign in 40 years.
The decision was expected. Markets had all but priced out the possibility of an increase at the June meeting following what counts these days as a "benign" CPI report and, less importantly, a cooler-than-expected read on producer prices released just hours before the decision.
In truth, Philip Jefferson all but pre-announced the Fed's intention to skip this month's meeting during a speech on
Fed is pausing with FF rate 5.00-5.25% not even caught up to core PCE inflation 5.30%, median dot plot has FF +50bp tp 5.60% by year-end but core PCE -140bp to 3.90% by then, even though Fed has seen little progress on core inflation that it wants to see inflation moving down “decisively”. Fed doesn’t know how long/variable the lags are, sees labor market “extraordinary resilience” driving services non-housing inflation, housing disinflation slower than expected. Hence the repeated question why then are you pausing or in one case why not rip off the bandaid. Answer was to see more data, even though won’t be all that much data between now and July meeting. In the intraday, equities didn’t seem to much care while the bonds took 6 mo up a whopping +1 bp. The 800 lb gorilla seems much diminished these days. No fear of the Fed.
It seems like the Fed’s trying to let banks and other slow moving institutions settle with the idea that “there will be high rates for awhile”… while trying to scare the FOMO rally into behaving (trust me AI hasn’t made anybody hyper efficient yet – in fact Bing and OpenAI are just burning cash and gpu so they can laugh at Google finally losing).