Hawkish FOMC ‘Still Waiting For Greater Confidence’ On Disinflation

Since the last FOMC meeting on June 12, gold has outperformed (while the dollar and crude oil have lagged). Stocks and bonds are also both higher…

Source: Bloomberg

US macro ‘hard’ data has trended weaker overall since the last FOMC (albeit with a blip)…

Source: Bloomberg

…and the ‘bad news’ macro data has prompted ‘good news’ dovish shifts in rate-cut expectations which are dramatically higher since the last FOMC (pricing more than the Fed’s two cuts this year)…

Source: Bloomberg

Expectations for today’s FOMC are ‘nothingburger’-y with just a 2% chance of a cut implied by the market (from 100% certain at the start of the year).

Source: Bloomberg

But all eyes and ears will be on the statement (which is expected to reflect ‘more confidence’ in the disinflationary path) and on Powell’s soothingly dovish words.

So, what did The Fed say?

Key headlines (via Bloomberg)

• Federal Open Market Committee votes unanimously to leave benchmark rate unchanged in target range of 5.25%-5.5%, a more than two-decade high, for the eighth straight meeting

• Statement tweaks language to say “the committee is attentive to the risks to both sides of its dual mandate”; had previously said officials were “highly attentive to inflation risks”

• Statement repeats prior language saying the FOMC doesn’t expect to cut rates “until it has gained greater confidence that inflation is moving sustainably toward 2%”

• Fed also tweaks language to say price pressures remain “somewhat” elevated, and acknowledge “some further progress” toward inflation goal, from “modest further progress” in previous statement

• Officials also adjust their assessment of the labor market, saying job gains “have moderated” and the jobless rate “has moved up but remains low”

• Statement notes that risks to achieving employment and inflation goals “continue to move into better balance”

• Decision is unanimous for 17th straight meeting

Which has a hawkish bias to it compared to the market’s dovishness…

Win Thin, global head of markets strategy at BBH, says:

“I think many were hoping for some sort of softening here, along the lines of ‘we have somewhat greater confidence’ but the Fed did not tip a September cut, by any stretch.

I think they will cut, but the Fed is playing its cards close to its chest. Marginally less dovish than expected.”

George Goncalves, head of US macro strategy at MUFG, says the latest FOMC statement shows:

“there are enough elements that were re-written that it seems to us that there was careful consideration to how to express the start of a pivot towards easing.”

Read the full red-line below: