"Patient" FOMC Leaves Rates Unchanged, Talks Down Balance Sheet Unwind Trajectory

With a 1% probability of a rate-hike today, all that matters is The Fed's tone (better be uber dovish) and any language shifts on the balance sheet normalization.

The Fed capitulated:

"In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.''


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Since The Fed hiked rates in December, Gold is the clear winner...

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But we note that stocks and the market's perception of The Fed's dovish/hawkish-ness are joined at the hip...

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Somehow, The Fed has got to slowly but surely jawbone its outlook down to the market's uber-dovish perception without spooking investors that something very serious is going on...

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Markets faded from their highs into the Fed Statement:

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So, did The Fed deliver?

They appeared to do so - folding entirely to the market -

  • Fed removes reference to further gradual rate increases
  • Fed says it plans to continue with current floor approach
  • Fed says it’s prepared to adjust balance-sheet normalization
  • Fed reiterates federal funds target is primary policy tool
  • Fed says economic activity rising at solid rate, jobs strong
  • Fed says labor market strengthened, unemployment remained low
  • Fed says spending grew strongly, investment moderated
  • Fed says core and headline inflation remain near 2%

So The Fed is saying everything is awesome with the economy but we are panicking out of our rate-hike and balance sheet normalization process because the market shit the bed?

The biggest change, as Goldman previewed:

the FOMC adds "patient" rate outlook amid muted inflation and global developments, and introduces flexibility in balance-sheet normalization.

The Fed removes a statement about "some further gradual increases."

The line about "balance of risks" is also removed, replaced by a line about policy "patience amid muted inflation and global economic and financial developments."

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