Dovish Central Banks

July 23rd, 2017|FOMC|

Last week, the BOJ and ECB leaned dovish.  The Fed next week will probably complete the trifecta of Central Bankers leaning dovish.  What else can be expected when there are few signs of inflation?  And the growth data has not been great in the US, except for maybe employment.  The prospect of fiscal stimulus could have been a bonus, but that is looking less likely in the near future. I had suggested previously that Yellen was a "scientist" and that she would start to question a rise in inflation after an extended time with no empirical evidence of a raise.  [...]

Timing of Pricing in Hikes

May 8th, 2017|FOMC|

I thought it was interesting that the June meeting was about 80% priced with over 5 weeks to go.  I think the Fed is hiking in June as much as the next guy.  But that’s a lot of time to go – we could get unfavorable news, or the data could turn south, or we could get some market instability, etc.  Since a number of the previous hikes were “well telegraphed”, I wanted to see when the markets priced in the “likely” hike. The chart on above shows the number of weekdays until the respective FOMC meetings (x axis) and [...]

Dudley More

April 2nd, 2017|FOMC|

Dudley is the guy who said last year something to the effect that the Fed’s projections have an extremely wide standard error, and that people would be surprised at how wide it is.  Speaking of which, we should be getting the error bands around the SEPs at the June meeting.  So it’s interesting that he was as specific as he was in his interview, considering we are data-dependent.  I found a lot of interesting nuggets from his short interview: He is still a dove. He said “The consensus among many people is that the neutral FF rate adjusted for inflation [...]

Fed Funds Update

March 19th, 2017|FOMC|

Now that we’ve had some Fed shenanigans and the odds on various meetings have changed, we should do an analysis of the Fed probabilities for the next 15 months.  There are a number of notable changes since the last time we looked at this. The non-quarterly meetings got killed. I mentioned two weeks ago that the Fed may be reluctant to hike at a non-quarterly meeting, based on how much they were in a rush to hike in March.  So this can be understandable.  Remember less than three months ago, when our FFX friend jacked up the non-quarterly meeting probabilities?  [...]

Fed Takeaways

March 5th, 2017|FOMC|

When things don’t go as planned, I think it’s always good to take a step back and reflect.  Was the March hike something that could have been expected?  Maybe.  You just needed to think CPI would have lit as large a fire as it did under the FOMC.  I thought they would have needed some PCE corroboration.  But I suppose PCE inflation was firm month over month, even though it was in-line.  We learned a number of things from the events of the past week: We have no competitive advantage trying to guess what will happen at the next FOMC [...]

A Post-Tarullo FOMC

February 12th, 2017|FOMC|

There are some important implications of Tarullo leaving early: Trump gets to pick THREE Fed Governors, ONE Fed Chair (next Feb) and ONE Vice Chair (next June). Yellen and Fischer may not choose to stay after their terms as Chair and Vice Chair are over.  They could stay if they wished since their Board terms are not over until 2024 and 2020 respectively.  I would guess they choose to leave.  They are both pretty old, and the last thing you need in your golden years is to live in fear of being harassed via Twitter.  If they chose to leave, [...]

September FOMC Meeting Takeaways

September 25th, 2016|FOMC|

Here are the nuggets I thought were interesting from the FOMC meeting: The FOMC went to a balanced assessment of risks and said that “the case for an increase in the Federal funds rate has strengthened.” They stopped short of giving a time-frame however.  What we have is a more forceful version of the status quo, which is data-dependency – “to wait for further evidence of continued progress toward its objectives.” The million dollar question is, what constitutes “evidence of continued progress.” In my view, I think it’s only about 125K in payrolls (all other things being equal).  I know [...]

FOMC Plan 1609

September 18th, 2016|FOMC|

The Sept meeting is about 3.4 bps priced.  Considering the “forward looking” ISM indicators and Retail Sales were weaker, I don’t see the higher CPI outweighing those other factors.  3.4bps seems a little low, but nothing I would want to take a direct punt on.  There seems to be a few analysts also saying this seems low, but as I’ve mentioned before, it’s a little reckless to hike when the markets aren’t pricing it in and libor has been creeping higher (especially relative to FFs). The most likely and reasonable path, is for the Fed to skip now, and at [...]

Preliminary Thoughts on September FOMC

September 4th, 2016|FOMC|

The Fed meeting is in 2.5 weeks, and right now, 6.4bps are priced in.  We have a little more data (Retail Sales, CPI, etc) before the meeting, but the picture probably won’t change dramatically for the FOMC meeting.  I thought I would go over the pros and cons of hiking in September. PROS: Payrolls have averaged 232K Q3 GDP is running close to 3% Some core inflation measures are elevated (CPI, Cleveland CPI) Removes excess accommodation Removes some asset price bubble risk Get it over with Restores some Fed credibility CONS: Even with a 3% Q3 GDP, we are only [...]

No July

June 6th, 2016|FOMC|

The obvious thing to say is that a June hike is out.  But I don’t think they can even begin to have the discussion where July is a likely candidate for a hike.  As I mentioned in the email, we only have 1 payroll left before the July meeting.  I just don’t think that is going to be enough to provide confidence in a hike.  What’s the rush?  It’s not like the data has been good this year.  And I think when you get slapped in the face, you need to take a little more time to reassess.  You would [...]