Anonymous ID: f349e5 March 20, 2019, 11:11 a.m. No.5791822   🗄️.is đź”—kun

Powell 'Throws In The Towel' On Growth & Inflation, Sees Just One More Rate-Hike In Cycle

 

The Fed has some 'splaining to do. The market is pricing in 16bps of rate-cuts in 2019 while they are forecasting - at last call - 2 rate-hikes.

One of the big issues the Fed's wrestling with is what constitutes neutral, and while there's a lot of false precision in the r* framework, by one popular measure the funds rate is already bang on neutral. Bloomberg notes that if we compare the real policy rate (deflated by the core PCE price index) with the Laubach-Williams estimate of the real neutral rate, we find a perfect match.

 

And furthermore, 10Y yields have been glued to the Fed's long-term dot-plot rate forecast since the start of 2018.

 

Expectations are that the FOMC will maintain its more dovish "patient" stance and shift from two hikes to one (zero would likely scare the markets) in 2019. Currently, there is a 73% chance that the Fed doesn't hike in 2019. This will be evident in the SEP with a lowered inflation and growth outlook. As of December, the Fed was anticipating 2.3% growth in 2019 and 2.0% in 2020.

 

“The focus is going to be entirely on their dot plot and whether or not the Fed has taken any chance of a rate hike out of their own internal forecast,” said Lara Rhame, chief U.S. economist at FS Investments, which manages $24 billion.

 

“It’s going to be interesting to see if any of the Fed has priced in a rate cut, which I doubt they have, and then how many are thinking they may still need to adjust rates higher once or twice more throughout the year – because I think it’s been a little premature for the market to discount any rate hike.”

 

And, along with when to stop shrinking its asset portfolio, the Fed faces another decision - what mix of Treasurys it holds, with implications for the economy.

 

Of course, The Fed's biggest issue is being perceived as dovish enough - the rates market is priced for 16bps of cuts… and how dovish is too dovish (what does Powell know that we don't?) and too hawkish risks a violent repricing in bonds and stocks which are expecting the Fed to be patient, data-dependent and on hold.

https://www.zerohedge.com/news/2019-03-20/fed

Anonymous ID: f349e5 March 20, 2019, 11:16 a.m. No.5791951   🗄️.is đź”—kun

Dollar, Bond Yields Plunge As Fed Folds

 

The Fed surprised dovishly and markets are reacting as expected…

The Dollar is getting hammered.

Treasury yields are tumbling - 30Y back below 3.00%

And stocks are bid..

As the odds of a rate-cut in 2019 are now up to one-in-two.

https://www.zerohedge.com/news/2019-03-20/dollar-bond-yields-plunge-fed-folds

 

https://finance.yahoo.com/quote/%5EDJI?p=^DJI

 

https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx