"Less Room To Run" - What Wall Street Is Paying Attention To In Today's Fed Statement

Tyler Durden's picture

When it comes to today's FOMC decision, there is little speculation: a 25 bps rate hike, the first in 2016 and only the second since the financial crisis, is now effectively assured: all 103 Bloomberg-surveyed economists expect a 25bp increase. The market agrees, and as shown in the chart below, implied rate hike odds are at 100%, with some even speculating that the Fed may hike by 50 bps.

Thus, as has been the case throughout the year, less emphasis is to be placed on the rate decision itself given the current expectations (despite them being for a hike), although this could be an entire reversal if the FOMC were to leave rates unchanged. Furthermore, participants expected the FOMC to wait until December, given that there will be accompanying Dot Plot projections and the chance for the Chair to explain herself and the decision in greater detail.

In recent months, the data releases have been solid and improving (despite a modest wobble over the past week) as we head towards the end of the year, and many of the Fed members have expressed the continuation of this improvement is likely to result in the hiking of rates towards the end of the year. The latest jobs report saw a marginal beat on the expected reading while unemployment dropped drastically to 4.6% vs. Exp. 4.9% (Holiday Season) while the PCE inflation metrics, core and headline, have continued to improve, which has always been on the Fed's radar. The most notable commentary from members includes: Bullard stating that a December hike looks reasonable, Mester commenting that another rate increase is a prudent step to take while Powell commented that the case for a hike has clearly strengthened.

It's also worth mentioning that no FOMC voter has attempted to pour cold-water on a Dec hike, however, Chair Yellen has produced a decidedly non-committal tone despite market expectations stating that their appeared to be scope for additional labour market gains yet leaving rates on hold could lead to excess risk taking.

As we approach 2017, further factors begin to take hold, most notably the alteration of the voting members of the Fed. This year will see Kaplan, Kashkari, Harker and Evans take up voting positions while George, Mester, Bullard and Rosengren are to resume their non-voting duties. Many have stated that this could offer a more dovish tilt to the composition of the board which in turn may influence some of the more crucial meetings next year. Analysts at Barclays have stated that they expect two hikes next year which will be packed into the end of the year (September and December), while forecasting a low risk of a faster pace of hikes in 2017. They have also highlighted that even though higher interest rates and an appreciated USD have tightened conditions to a degree, they remain accommodative.

Finally, this decision comes in the wake of the post-election rally and the anticipation of a Trump Whitehouse. The fiscal easing his team has proposed is viewed both as stimulatory and inflationary, as seen in the move higher in both stocks and yields over the last few weeks.

* * *

So with December in the bag, two questions emerge as key, the first of which is what will the Fed hint about 2017.

According to Wall Street consensus, the FOMC is unlikely to alter its forecast for two rate hikes in 2017 in today’s decision and probably won’t adjust longer-term dots by much as it’s too soon to judge economic impact of Trump administration policies.  So with rising expectations for growth and inflation, as well as tightening U.S. labor market, the Fed should have all the confidence it needs to hike for first time this year with no abstensions expected; that said, the cautious is Fed seen by some as looking to avoid rattling markets, and will likely wait for details on Trump’s plans. Looking at the future, BNP, JPMorgan, Morgan Stanley are among those expecting Fed to keep 2017-2018 dots the same or little changed.


According to Goldman, which has been a noted USD bull for the past year, monetary policy normalization in the US has the potential to drive the Dollar much stronger. That view has been challenged at various times this year by dovish shifts from the Fed, when it repeatedly downsized the overall size of the hiking cycle. For us as Dollar bulls, it is not whether the Fed hikes or not at a given meeting that matters, but rather what kind of overall hiking cycle it communicates, given that this has a big influence on the front-end interest rate curve. This is why dovish revisions to the “dot plot" weighed on the Dollar at various points this year.

Goldman adds, that looking forward to today’s meeting, the hurdle for additional reductions is high, even before one takes into account the prospect of fiscal stimulus in an economy that is operating close to capacity. This is because it would take six dots to move down the median number of hikes for 2017 from two to one, while it would also take six dots moving down for the 2018 median number of hikes to go from three to two. This is a higher hurdle for 2017 and 2018 than in any previous meeting over the past year, i.e., there is “Less Room to Run” for the Fed to revise the overall size of the tightening cycle down. The one possibility for a downward revision is for the longer-run median dot, where only one move lower would shift the median down. But we see this as less of an immediate policy signal compared with the dots for 2017, 2018 and 2019, where it would still take 4 dots to shift the median lower.

* * *

A second, tangential question and completely unrelated to the Fed's announcement, will be whether Trump will chime in - either on Twitter or elsewhere  - and what his tone will be. As Art Cashin asked earlier on CNBC, "will Trump tweet hostilely, saying they hiked rates now that I'm in?" The market veteran adds that "if there's a tweet, its tone may be just as important as the rate hike and maybe more so."

So with that out of the way, here is a recap courtesy of Bloomberg of what some of the most prominent sellside names believe will happen today:

BNP (U.S. economics team)

  • Fed to hike fed funds rate by 25bps; expect little guidance beyond what’s already in Fed’s projections
  • Statement could include upgraded assessments in first paragraph, description of risks as appearing “balanced”
  • No changes seen to Fed’s median dots; too early for big changes to summary of economic projections; most on FOMC will probably wait for more clarity
  • “Elephant” at Yellen’s press conference is question of how Fed will respond to changes in fiscal outlook; impact remains “highly uncertain”

BofAML (Candace Browning, others)

  • Market’s expectation for Fed hikes in coming years has room to rise
  • Inflation “party” has started, with core PCE expected to rise to 1.9% by end of 2017, “approaching if not overshooting the Fed’s 2% inflation target”
  • Economist Michelle Meyer expects Fed to hike once in 2017, three times in 2018; any signs of concern from Fed regarding USD strength would limit short-term USD gains

Citi (Dana Peterson, Andrew Hollenhorst, others)

  • Fed may make few, if any, adjustments to its growth and inflation forecasts
  • Renewed USD strength and back-up in yields may ultimately exert drag on U.S. growth and inflation
  • Recent moves in interest rate, currency markets aren’t likely to be enough to affect Fed’s 2017 forecasts now

Credit Suisse (Praveen Korapaty, others)

  • Market isn’t pricing in enough risk of Fed hikes in 2017-2018; Trump administration is likely to have passed some fiscal initiatives by 2H 2017-1H 2018
  • In phone interview, Korapaty said “we will probably get a small move up in dots;” Fed’s meeting could be a “catalyst” for markets to start repricing number of hikes expected in 2017-2018, if statement or Yellen’s press conference is more hawkish than expected

Deutsche (Joseph LaVorgna, others)

  • Policy makers will have little reason to lower their long-run rate forecasts further, especially since upside risks to growth have increased considerably; they will likely view their longer-run fed funds projections as “just right”
  • Fed will likely be “encouraged” by convergence of markets’ outlook toward its forecasts

Goldman (Robin Brooks, Michael Cahill)

  • Fed is likely to break trend of downward revision to policy rate path, marking “a turning point for the dollar”
  • USD may rise after FOMC meeting
  • Firm’s 12-month forecast for USD/JPY is raised to 125 from 115; 24-month forecast remains at 130

JPM (Michael Feroli)

  • Statement will take no view on prospects for fiscal policy; Yellen to stress that it’s premature to change economic or Fed policy outlook
  • No dissents expected in decision to hike
  • Median dot for 2017 will continue to suggest two hikes; JPM sees no compelling reason for major changes to 2018 or 2019 dots; FOMC may take “breather” on adjusting long-term dot

Morgan Stanley (Ellen Zentner, Ted Wieseman, others)

  • Trump’s economic agenda suggests Fed’s forecasts for growth and policy “look achievable,” which should lead to hikes next year in September and December; three more seen in 2018
  • Fed will stick to its path for target rate for now; expect slight downward revision to NAIRU and longer-run neutral rate
  • Market possibly pricing in a “decent probability” that median dots shift higher at FOMC meeting, though current market expectations are along FOMC’s projections

Standard Chartered (Thomas Costerg)

  • FOMC will want to avoid any unnecessary volatility and “meddling in politics” so its economic forecasts will be little changed
  • Changing its forecasts “radically” up or down would probably be seen as politically validating or rejecting Trump’s policy platform
  • “Status quo could be a relatively safe option”

TD (Brittany Baumann, others)

  • FOMC to emphasize its patient stance beyond December; expect little change to economic projections and unchanged pace of normalization in dots
  • Base case implies “relatively quiet landing” for USD, with most of upside potential realized before meeting
  • Yellen likely to mention USD strength, room for further decline in labor market slack

UBS (Drew Matus, others)

  • Current distribution of dots is at risk of faster pace of tightening “across the entire forecasting horizon”
  • Only two policy makers would need to move their 2017-2019 outlooks higher to produce a higher median
  • Long-run forecast could move if just one forecast shifts between a 2.75%-3% rate

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Robert Trip's picture

"As the waves of friendly, along with hostile economies lap upon our shores, there is a hint of a friendly sunrise in the East..."

Janet Yellen.


JRobby's picture

Yellen's head just exploded. The pressure is on now. No-win scenario.

Looney's picture


Crimes Against Humanity are certain acts that are deliberately committed as part of a widespread or systematic attack directed against any civilian population or an identifiable part of a population.

Unlike war crimes, crimes against humanity can be committed DURING PEACE or war.

Doesn’t this definition also describe what the Federal Reserve has been doing?


Arnold's picture

Are savings and retirement plans considered humanity?

Or mythical manifestations of a long lost humanity?

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) Arnold Dec 14, 2016 1:47 PM

Why be subtle about your agenda?  Just make it 250bps and be done with it.

rccalhoun's picture


too early to take a swipe at trump by being super hawkish? 

DeathMerchant's picture

That head has always looked exploded to me.

Folkvar's picture

All their fake data states the US is doing wonderfully so they'll raise. Although the PPT is on standby. 

Seasmoke's picture

And everyone will sit around for the next 2 hours with their dick in their hands just waiting for Mr. Yellen to say SO about 100 times. What a stupid insane system this has become.

Robert Trip's picture

The sharp Jewish fellas took all of our money, $21 trillion.

They are laughing all the way to the bank.

Oh, they are the bank.

ebworthen's picture

"In the bag"?

Hasn't happened yet.

6% Janet! C'mon, I dare 'ya!

Bill of Rights's picture

 Janet L. Yellen

The Importance of Asset Building for Low and Middle Income Households

onwisconsinbadger's picture

50 basis points baby. Come on Janet. what did JON HILSENRATH know it and when did he know it.

NugginFuts's picture

.25% or 2.5%, doesn't matter - it's always good news. 



Being Free's picture

True.  The memo has already been delivered.  The "market" will respond favorably to whatever the fed says or does.

NugginFuts's picture

....unless you're PMs. Then expect a flogging.

Soul Glow's picture

The best thing that the retarded Fed has created is a dumbed down populcace.  Look at all the idiots!  On one side you have liberals celebrating Obama's braindead economics for the last 8 years.  On the other you have conservatives who think Trump's hiring of Goldman Sachs and his "creation" of an infrastrucuture bank - which was a Clinton idea - is giving rise to a better economy.  Both are wrong and the fact that the government has been handed over to Wall Street banks will end with pain and suffering for most people.

But along the way everyone has put their faith in stocks, bonds, and real estate and created 3 of the largest bubbles of all time.  I could see people playing the rise in rates as "the last time to buy real estate" and having housing prices increase further this year.  I could see conservatives buying this blow off top in stocks thinking they will run higher with Trump.  And personally I welcome these bubbles, as I will take the other side to these trades and put my money in gold and silver bullion because that is the stuff that sticks around when all else fails.  It's been proven time and time again.

monad's picture

Fake as Russian hackers

// //
small axe's picture

Translation: The rape and pillage will continue for the foreseeable future. Bankster scam is safe in the overlord's caring hands.


moorewasthebestbond's picture

Jesus Christ Almighty!


Zhedge has completely lost it. Twenty nine (29) articles posted by 12noon EST today? What the fuck? Sometimes less is more. Zhedge has become totally diluted with crap articles. Who has time to sift through 29 articles by noon, much less generate meaningful commentary?


I've learned a lot and come across some truly knowledgeable commenters, but the next time I'm banned, I'm out for good. 10 to 15 articles a day here would be more than enough. The commentary would run deeper and that's what we all come here for.

Soul Glow's picture

I read 29 articles for breakfast....

Seriously, I read most articles.  I skip over some but that's the way it's always been.  I tell you what, why don't you be thankful this place exists instead of acting like you own the joint.  I mean, it is free to all.

moorewasthebestbond's picture

Back in the good old days it was 10 to 15 articles a day at most and the comment threads ran much deeper.


I'd pay a subscription free in a heatbeat to block the ads and hide the all the filler content like SHTFplan and Michael Snyder doom porn articles

FreedomGuy's picture

Definitely block the ads or get them to some reasonable level.

Nobody For President's picture

I confess, me too. And another 29 before bedtime...

But Bestbond has a point. I could go along with less political articles and more financial/technical articles. Really sorry ZH and Nanex seem to have (mostly) parted company - damn, there was some good, detailed, technical, behind-the-scenes shit in that pairing - the Facebook opening day fiasco was both educational and very, very entertaining. Ditto the BATS opening day that more or less wasn't. Many others.

Anybody know what happened re this sort of split? I'm sure ZH ain't gonna tell. Did Nanex shut it down 'cause it interferred with their paid service?

And when was the last good article on Dark Pools?  I mean, fuck, I got it that the deep state (or most of it) wants to stop Trump from getting elected - but one article a day is really enough - just hit the high points and move on. (Maybe 'move on' is not the proper term here, ahem....)

And Janet (can I call you Janet, I'm older than you are and much more charming?): Shock The World and raise a whole one-half of one percent! OMG! Don't worry, the Santa Claus rally will cover your behind.

And Sean was the best bond, bestbond. Moore played the role with a certain sense of droll humor, which is appreciated - he never took it seriously - but nobody, I mean nobody, could say "Bond, James Bond" like Connery. (Craig is a reasonably close second.)

Time for breakfast.

El Hosel's picture

The "New Normal" " High Pressue Economy" will prevail despite the outbreak of "Global Populism" and "Fake News"......Dow 20,000 is the real thing, help yourself to some apple pie and chevrolet. Fuk Yeah!

You can't "Make this shit up" ???

LawsofPhysics's picture

For fucks sake all those Primary Dealer banks are the Fed!!! Unlike us they already know what the Fed will do and will profit from frontrunning in the "market"...

Where the fuck have you people been? It's a club!

SheepDog-One's picture

Leave it to CNBS 'seein BS' to run a fake news blurb about Trump being pissed off about a rate hike of .25....how did they figure that's the case?

FemDayTrader's picture

Now, Tyler you write a very good article.  But the pundits are wrong in their expectations over and over again.


Honestly the only analsyt I konw of who actually does get market action correct is www.shewpave.com


ON election night when all the pundits were still saying that a Trump win would cause the markets to sell off the Dow futures were down over 800 points. Well, the analysts at Shepwave gave a strong buy signal at that exact time.  Also they call moves from day to day and week to week. here is a chart they shared on thier FB page which proves that they are making correct market calls.



Snaffew's picture

shepwave is the best at examining anal cavities;...I know they got mine right when Dr Carl laid right in there and lanced a bright purple rhoid off of my rectum with nothing more than a sharp pair of teeth...those shepwave boys sure know how to "tear the ass" out of someone.  

inosent's picture

what if there is no hike?

tricorn teacup's picture

Trump won the election.  They now have their scapegoat if the investment markets have a (long overdue) major correction when they raise interest rates.

bankonzhongguo's picture

Does not matter what they do.

There is no market, only a shrinking pool of insiders playing musical chairs on board the Titanic.

You have to change your worldview to recognize that between the Fed, its shareholders and a parade of corporate sycophants marching under either a Democrat or Republican banner the country and markets are being run by a HFT Politburo under Five Year Plans.

Entrepreneurship is at record lows, labor participation rates crazy low, household incomes stagnate for nearly 20 years, core use inflation masked, more government workers than industry, college debt and Obamacare insurance mandates replaced home ownership capacity, baby boomers divesting, real asset deflation - and the band played on.

Fed rates impacting local government pensions are the only metric for community health. Lose that and somehow universal basic income fairyland is not going to save anyone.

Seasmoke's picture

Hawk. Dove. Deer in Headlights. Pick any animal name you want. They will spin it positive for everything except Gold and Silver. Happy Hanukkah!!!!

Seasmoke's picture

So the price of everything will change between 159pm and 201pm. LOL !!!

Maestro Maestro's picture

***Fuck the Fed and Fuck the Americans. Anyone who takes them seriously is an utter moron, like the Russians or the Chinese certainly are. Do the Jews give a shit about what the Americans have to say? Fuck the goyim. (Yellen is not a human being so she can't be a Jew.)***

Worse than the bankers rigging gold and silver prices and not having the gold they sold you (or selling gold that they don't have via fraudulent COMEX Futures contracts), is the fact that we don't even have MONEY today.  Therefore all financial transactions and economic numbers predicated on the existence of money are FRAUD and FORGERIES currently.

The electronic digits and paper fiat currencies in use today are NOT money, according to the law of the country that issues the reserve currency of the world, the US Dollar (Article 1, Section 10 of the US Constitution); or by the tenets of the science of Economics (i.e., fiat currencies are not money because they are not a store of value nor a unit of account due to the fact that NOT ONE fiat currency's value is determined or stipulated in concrete legal terms).  Dollars and Euros and Yens are not even lawfully DEFINED as to what they are, what their economic worth and transactional value is, hence they cannot constitute the legal foundation of any lawful contract!

(Also, there cannot be either inflation nor deflation in the ABSENCE of money.  Both inflation and deflation are monetary events hence cannot take place where there is literally no money.)

What we have today is massive GLOBAL FRAUD mascarading as a monetary system based on the (fraudulent) US dollar -- all fiat currencies are basically a derivative of the US dollar, including the Euro, the Yen, the Yuan, the Rouble, the Shekel and the Riyal.


Why do a few people get the right to print fake fiat money out of nothing and buy your goods and  services with it, whereas you have to WORK to obtain the same worthless money created out of nothing?

THAT is the question at the heart of the matter.  That the bankers manipulate interest rates or the price of gold via fraudulent Futures trading (by selling gold that they don't have) with fiat money is a moot point.

To put it differently: why do the bankers get to have anything that they want without working for it and you, you don't?

All this talk about market rigging, monetary theory and fraudulent (paper) gold trading is a cover-up for INJUSTICE.

The US Constitution FORBIDS the use of debt as money; the US Constitution proscribes (debt) notes which is what the US dollar is presently.  Think, all other currencies are just another name for the US Dollar.

What passes for money today is a CRIME, no more no less.


you are all aiding and abetting crime every time you buy, sell or get paid.

And then you ask, Why our leaders, the politicians, the bankers, and our military men and women are EVIL?

The answer is, because YOU are feeding the enemy!

both jack bauers's picture

"the cautious is Fed seen by some as looking to avoid rattling markets,"

Who wrote this article, Yoda?