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Thursday, March 28, 2024

FOMC Delivers “Dovish Hike”, Lays Out Plans For Balance-Sheet Unwind

Courtesy of Zero Hedge

In the most well-telegraphed, ‘never in doubt, no matter how bad the economic data is’ FOMC Statement ever, The Fed hiked rates by 25bps and maintained its rate-hike trajectory forecast, shrugging off the collapse in economic data (including weak inflation). The market was anticipating a so-called ‘dovish hike’ and The Fed delivered to some extent by saying it is “monitoring” inflation (and dropped the word ‘transitory’) and also offered more detailed plans of the balance sheet unwind (beginning this year).

Interesting hedgeing against the chance of a “no rate hike” was “aggressive” today in Fed Funds Futures.

Here are the headlines.

  • *FED RAISES RATES, MAINTAINS FORECAST FOR ONE MORE HIKE IN 2017
  • *FED SAYS IT’S `MONITORING INFLATION DEVELOPMENTS CLOSELY’
  • *FED SAYS KASHKARI DISSENTS IN FAVOR OF KEEPING RATES ON HOLD
  • *FED SAYS IT EXPECTS TO START SHRINKING BALANCE SHEET THIS YEAR
  • *FED MAINTAINS BALANCE SHEET REINVESTMENT, LAYS OUT UNWIND PLAN

Key highlights from the Fed’s forecast, first the change in dots, which dipped on the long-end:

On inflation: the key line “Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term.”

  • Median 2017 core pce inflation 1.7% vs 1.9% march est.
  • Median 2017 core pce inflation 1.7% vs 1.9% march est.

On the Fed Funds rate:

  • Median federal funds est. 1.4% end-2017, unch vs march
  • Median federal funds est. 2.1% end-2018, unch vs march
  • Median federal funds est. 2.9% end-2019 vs 3% in march

Some other observations:

  • Fed says it’s ‘monitoring inflation developments closely’
  • Fed raises target range for federal funds rate to 1%-1.25%
  • Fed: labor mkt continued to strengthen, job gains moderated
  • Fed: economic activity rising moderately, spending picked up
  • Fed says balance-sheet rolloff caps would start at $10b/month

*  *  *

The fallacy of Fed data-dependence is exposed…

And the yield curve has collapsed in policy-error-style…

As of last night, the market was pricing 1.48 rate hikes in 2017 (including today), heading into the print, it was anticipating just 1.28 rate hikes (including today) following the dismal data this morning…

*  *  *

Full FOMC Statement redline below…

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