Update (1440ET): During his prepared remarks, Fed Chair Powell noted that ‘tapering ending around mid-2022 may be appropriate’.
That fits expectations of a taper start in December with a $15 bn ($5bn MBS, $10bn TSY) taper per month…
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Heading into today’s pivotal FOMC statement, dot-plot update, and press conference, US equities were doing their usual “FOMC drift” higher…
But, since the last FOMC Statement (July 28th), bonds are best, stocks are worst with the dollar modestly higher and gold modestly lower…
Source: Bloomberg
Of some note also is the fact that the picture is the same since Powell’s Jackson Hole speech (where he laid out plans for a tapering of the Fed’s asset purchases starting this year) – stocks down, bonds up…
Source: Bloomberg
Crypto has been on a wild ride during that time too, with Bitcoin dumping back to almost unchanged from the last FOMC statement…
Source: Bloomberg
Rate-hike expectations have chopped around but are modestly more hawkish now than at the last FOMC…
Source: Bloomberg
How did we get here?
h.t Viray Patel
And while all the ‘talk’ is about the taper (with questions about its start and its trajectory), it is unlikely The Fed will do anything but tip a hat to the idea today (providing the promised “advance notice” that tapering is coming, paving the way to announce the start of tapering at its November meeting, a move which was hinted in a recent trial balloon by the WSJ).
All eyes will be focused on the ‘dots’ as the market (noted above) is pricing in high odds of a rate-hike before the end of 2022 – very different from The Fed’s June view…
Source: Bloomberg
Specifically, for 2022, only two participants would have to add a hike for the median to show a half-hike and three for the median to show a full hike.
So, what did The Fed say?
Just as expected, The Fed signaled that “moderation in the pace of bond-buying may soon be warranted.”
There’s a reference to delta here that wasn’t in the July 28 statement:
“The sectors most adversely affected by the pandemic have improved in recent months, but the rise in COVID-19 cases has slowed their recovery.”
Median inflation expectations were revised significantly higher… and GDP was revised down notably, to 5.9% from 7% for this year
Not only has the inflation forecast nudged up, a record number of members still see inflation risk to the upside.
And the 18 Fed officials are evenly split on a rate hike next year, which hiked the median plot to a half-rate-hike by the end of 2022…
Interestingly, the median forecast of a 1% federal funds rate at the end of 2023, but only 1.8% at the end of 2024, which Bloomberg’s Chris Anstey notes suggests either some Fed policy makers are anticipating a pause in the rate hike cycle, or maybe they have in fact lowered their estimate for the so-called terminal rate — the end-point of the rate hike cycle.
So, is this the beginning of the end?
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Full Redline below:
