Optimistic Fed Signals "Strengthening" Economy, Shrugs Off Inflation As "Transitory"

Inflation... or not?

Source: Bloomberg

Since the last FOMC meeting, on March 17th, 10Y TSY yields are unchanged... while commodity prices have exploded higher...

Source: Bloomberg

And to add to the confusion, real yields have tumbled...

Source: Bloomberg

In that same period, the dollar has dropped 1% as bonds, bullion, and big-caps have all risen around 2%...

Source: Bloomberg

And then there's crypto... which has seen prices explode since the last FOMC meeting...

Source: Bloomberg

Expectations for the first Fed-rate-hike are unchanged since the last FOMC meeting...(and remain well ahead of The Fed's forecast)

Source: Bloomberg

So, will Jay Powell and his pals recognize the solid vaccine trajectory, the removal of mask mandates, the surge in 'soft' survey data, and improvements in spending and labor markets?

Source: Bloomberg

Or will he mention that US stock valuations have never, ever been more expensive...

(Click on image to enlarge)

Source: Bloomberg

We doubt it - today is expected to be yet another snoozefest - perhaps the last snoozefest FOMC meeting before things start to hot up:

  • June – tapering discussions begin to intensify as incoming data remains strong
  • June/July FOMC minutes, speeches, and Jackson Hole – additional comments that participants are beginning to see signs of “substantial further progress”
  • September – adjustment to the post-meeting statement to acknowledge that “substantial further progress” is likely to be made “in coming months”
  • December – official announcement that tapering will start in January 2022
  • January – tapering starts, with a $20bn ($10bn) reduction in the pace of Treasury (MBS) purchases every six months. Tapering finishes by Q3 2023, the same quarter we expect liftoff

So what did The Fed do/say?

As expected The Fed kept rates and their bond-buying program unchanged.

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