Obviously, the Fed intends to keep rates on hold at this week’s policy gathering.

Several officials recently indicated they’d rather not raise rates again, or at least not right now, and the Fed anyway isn’t in the business of surprising markets. There’s virtually no rate hike premium priced into this week’s meeting. Most importantly (and try not to laugh), The Wall Street Journal‘s Nick Timiraos hasn’t suggested otherwise.

The Committee’s hawks will doubtlessly ask Jerome Powell not to say anything during the press conference to suggest the Fed is definitively done. That won’t be a hard sell with the vaunted Chair. Powell isn’t the most domineering personality in the world, but he’s emphatic that his is a Fed determined to “finish the job,” and that the Committee “won’t hesitate” to tighten further should inflation stop cooperating.

But when it comes to academic doublespeak and obfuscation, Powell isn’t your guy. If you’re a hawk on the Committee, you can’t depend on him to explain away confusing juxtapositions without coming across as confused himself. For a lawyer, he’s easily cornered. That (probably) means the new dot plot will retain the second of the two additional 2023 hikes conveyed by the June dots. Otherwise, and assuming the Fed doesn’t want to implicitly call the job done, it’d be left to Powell to preserve the market-implied, coin-toss odds of another hike this year against a dot plot that suggests otherwise. He’d struggle to pull that off.

Of course, what matters more now is how long the Fed holds terminal, and where the trough is once rate cuts commence. In that regard, market pricing has firmed considerably versus two months ago.

The figure suggests the “higher for longer” mantra does have some buy-in, even as a handful of adventurous options traders are apparently gambling on lottery tickets. “The past week has seen a pickup in demand for options that will turn a profit should interest rates tumble before the middle of next year,” Bloomberg’s Michael Mackenzie and Edward Bolingbroke wrote, in an otherwise boilerplate Fed preview. “One trade positioned for a 3% rate by the middle of next year [and] other similar trades surrounding March were also made over the course of the week,” they added.

The new SEP will surely contain upward revisions to the growth outlook for the US economy. Although the inflation projections could be marked lower, upward adjustments to the growth outlook will almost invariably be more pronounced than any downward tweaks to the PCE forecasts. When considered with the warm August CPI report, a still resilient US consumer, elevated oil prices, a renewed rise in home values and a domestic equity market that’d plainly rather summit new peaks than revisit last year’s bear market lows, the risks for the Fed of a “not in so many words” message that hikes are done far outweigh any risks associated with keeping another hike on the table.

If the questions (and Powell will get these question on Wednesday) are “What about the lags? What about decelerating job gains? What about the yield curve? What about softer inflation outcomes notwithstanding August’s energy-driven bounce?” and so on, the easy answer is “Well, that’s why we didn’t hike this month. We’ve come a long way in a very short period of time, and as such, we can let the data speak.”

On some measures, policy isn’t all that onerous. I’ve seen other versions of the chart shown above where the real funds rate looks to be around 100bps higher versus my chart, despite using the same University of Michigan expectations series and, presumably, the same monthly Fed funds series. I don’t know what accounts for the discrepancy (I’m probably missing something) but it doesn’t matter for our purposes here: The point is that the unemployment rate really hasn’t budged despite the real funds rate’s rapid rise into positive territory.

In addition to the quantitative (assuming guesses count as “quantitative”) upgrade to the growth outlook in the new SEP, the statement may contain a qualitative upgrade to reflect economic resilience, although that’s not obligatory given that job gains have slowed down, and considering ample evidence to suggest the economy is in better balance than it was several months ago.

As for inflation, it’s going about as well as you could reasonably expect it to go. That’s not me trying to give the Fed any more credit than they deserve. Indeed, I’m the first to concede that the disinflation we have seen probably has more to do with the independent normalization of supply chains and labor market friction than it does with rate hikes. Maybe the hikes will bite on a lag, but so far, you’d be hard pressed to suggest Fed hikes are to thank for the lion’s share of inflation relief. The point in suggesting things are going ok is just to say they (things) could be going much, much worse. Just ask the Bank of England or the ECB.

It’s critical to distinguish between disinflation and outright deflation. The vast majority of readers don’t need an explainer, but the general public does, which is ironic because by virtue of feeling it through the K-shaped inflation dynamic, Main Street actually “understands” the situation better than any well-fed, highly-paid economists. Here’s the key point: A lot of the price increases seen during 2021 and 2022 are still in the damn price and will remain so forever, unless you think your local barbershop is going to reduce its prices, or that your favorite snack brand will be inclined to cut the price of cookies and crackers. So, haircut and cookie inflation (and a lot of other inflation besides) is permanent, the opposite of “transitory.”

Finally, for the de-globalization proponents among you, do note that an iPhone which is not only “Designed in California” but also “Assembled in California” would cost… well, I don’t know exactly, but suffice to say it wouldn’t be a mass market consumer good. Maybe your boss’s boss would have the iPhone 19 in that world, but you wouldn’t. Not even if (and in some sense, especially not if) wage growth is still running 5% by then.

Bottom line: If services sector inflation stays stubborn, domestically produced goods (e.g., cookies) don’t deflate and the goods deflation that came about through various Devil’s bargains+ in the era of hyper-globalization goes into reverse, it’ll be hard for the Fed+ to keep inflation steady at 2%, and that’s assuming they can wrestle it all the way back down in the first place.

Read more: Connecting The (FOMC) Dots+