With the Fed set to unveil its first balance sheet reduction in modern history – an event that is largely priced in – what traders are far more interested in, is what will happen to the Fed’s “dots”, where consensus anticipates no move for the 2017 dot, while the 2018 and 2019 dots could shift lower as the FOMC language turns slightly more dovish.
How could this dot “migration” take place?
First, as Adnan Chian observes, at least 4 Fed members need to move their 2017 dots lower to shift the median from 1 more hike in 2017 to no more hikes, i.e. December is “dead.”
Another observation is that the market is only pricing in 1 full hike in 2018…
… whereas the Fed’s “dots” still expect at least three rate increases in the coming year. A concerted effort will be needed by quite a few FOMC members to admit that the market was right all along…
Finally, the most vulnerable to change is the long-run median dot, where only 2
Fed members moving their dots lower is all that’s needed to shift the
median.
The answer will be revealed in just a few minutes.
via http://ift.tt/2xRkSCW Tyler Durden