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FOMC Shrugs Off Transitory Hurricane Weakness, Will Start To Unwind Balance Sheet In October

Courtesy of ZeroHedge. View original post here.

Today's the day. On Nov 25, 2008 The Fed announced it would begin buying assets for its own account to save the world. In Oct 2014, The Fed ended its QE3 buying program but continued to reinvest the proceeds to maintain its $4.4 trillion balance sheet. Today, Janet Yellen announced the balance sheet will be allowed to normalize, with reinvestments slowed/stopped starting in October.

Headlines:

  • *FED: HURRICANES UNLIKELY TO ALTER ECONOMY'S COURSE MEDIUM TERM
  • *FED: JOB MKT STRENGTHENED, ECONOMIC ACTIVITY RISING MODERATELY
  • *FED KEEPS RATES UNCHANGED, PLANS BALANCE-SHEET RUNOFF IN OCT.
  • *FED FORECASTS STILL SIGNAL ANOTHER 2017 HIKE, 3 MORE IN 2018
  • *FED REPEATS RISKS TO OUTLOOK APPEAR ROUGHLY BALANCED
  • *FED SAYS FOMC VOTE WAS UNANIMOUS
  • *FOUR FED OFFICIALS SEE NO MORE 2017 HIKES, UNCHANGED FROM JUNE ( Eleven Fed officials now see one more hike in 2017 versus just eight in June.

    - market odds only 50%)

The Fed cut long-term rates:

  • *FED ESTIMATE OF LONGER-RUN FUNDS RATE 2.8% VS 3% IN JUNE

Here are the maturing assets that will not be reinvested over the coming months…

So, up to $50bn per month reductions.

Many market participants appears to believe that The Fed has given investors plenty of notice that they would begin to unwind their balance sheet and so the actual event will be like "watching paint dry." This seems more than a little disingenuous given the great levels of confidence embued into the actual QE process to save the world.

As one wit on Twitter noted, "If I tell you everyday for 6 months that I am going to cut off your head on 9/20… you are prepared, but how will you react on 9/21?"

We shall see.

Since the July FOMC Meeting, gold is the biggest gainer as the dollar loses ground…

*  *  *

Notably the Taylor Rule (and the balance sheet-adjusted version) is implying The Fed should be about as tight as its been in decades…

And of course, here is what The Fed is really worrying about – they've lost control…

December Rate Hike Odds were at 53% heading into the statement…

Market liquidity flatlined heading into the FOMC statement…

This might help explains the three-card-monty game The Fed is playing, courtesy of ING, is the definitive "cheat sheat" matrix laying out all possible permutations of what can happen tomorrow, as well as the most likely market reaction.

Full Statement redline below:


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