FOMC Delivers "Dovish Hike", Lays Out Plans For Balance-Sheet Unwind

Tyler Durden's picture

In the most well-telegraphed, 'never in doubt, no matter how bad the economic data is' FOMC Statement ever, The Fed hiked rates by 25bps and maintained its rate-hike trajectory forecast, shrugging off the collapse in economic data (including weak inflation). The market was anticipating a so-called 'dovish hike' and The Fed delivered by saying it is "monitoring inflation developments closely" and also offered more detailed plans of the balance sheet unwind (beginning this year).

Interesting hedgeing against the chance of a "no rate hike" was "aggressive" today in Fed Funds Futures.

Here are the headlines.

  • *FED RAISES RATES, MAINTAINS FORECAST FOR ONE MORE HIKE IN 2017
  • *FED SAYS IT'S `MONITORING INFLATION DEVELOPMENTS CLOSELY'
  • *FED SAYS KASHKARI DISSENTS IN FAVOR OF KEEPING RATES ON HOLD
  • *FED SAYS IT EXPECTS TO START SHRINKING BALANCE SHEET THIS YEAR
  • *FED MAINTAINS BALANCE SHEET REINVESTMENT, LAYS OUT UNWIND PLAN

And the highlights, courtesy of Bloomberg:

  • RATES: Target range for fed funds rate was raised to 1%-1.25% from 0.75%-1%; decision included dissent from Minneapolis Fed’s Neel Kashkari; rate increase is third hike since December 2016
  • RATE OUTLOOK: Keeps reference to gradual pace of future rate increases, continues to say fed funds rates is likely to remain below expected long-run levels “for some time” and actual path of rate will depend on outlook
  • INFLATION: Says inflation on 12-month basis will stabilize around 2% over medium term, but is expected to stay somewhat below 2% in near term; said inflation excluding energy and food is running somewhat below 2%; Still says that FOMC will monitor inflation developments relative to its “symmetric goal”
  • ECONOMY: Fed now says economic activity has been rising moderately this year vs prior assessment that it has slowed; continues to say U.S. labor market has continued to strengthen and now calls solid job gains as having “moderated”
  • REINVESTMENT POLICY: Fed deletes prior language that said it will keep existing reinvestment policy in place until normalization of fed funds rate “is well under way”; also removes reference to FOMC’s holdings of longer-term securities staying “at sizable levels”
  • RISKS: Near-term risks to outlook still appear “roughly balanced” as FOMC monitors inflation developments “closely”

Key highlights from the Fed's forecast, first the change in dots, which dipped on the long-end:

  • 2017 1.375% (range 1.125% to 1.625%); prior 1.375%
  • 2018 2.125% (range 1.125% to 3.125%); prior 2.125%
  • 2019 2.938% (range 1.125% to 4.125%); prior 3.000%

On inflation: the key lines:

  • "Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term."
  • "Near term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely."

The FOMC's inflation forecast dropped by 0.2%:

  • Median 2017 core pce inflation 1.7% vs 1.9% march est.
  • Median 2017 core pce inflation 1.7% vs 1.9% march est.

On the Fed Funds rate:

  • Median federal funds est. 1.4% end-2017, unch vs march
  • Median federal funds est. 2.1% end-2018, unch vs march
  • Median federal funds est. 2.9% end-2019 vs 3% in march

The other forecasts:

  • Longer-run median unemployment rate 4.6% compares to previous forecast of 4.7% at March 15, 2017 meeting
    • 2017 median jobless rate at 4.3% vs 4.5%
    • 2018 median jobless rate at 4.2% vs 4.5%
    • 2019 median jobless rate at 4.2% vs 4.5%
  • Longer-run real GDP median projection of 1.8% compares to previous forecast of 1.8%
    • 2017 median GDP growth 2.2% vs 2.1%
    • 2018 median GDP growth 2.1% vs 2.1%
    • 2019 median GDP growth 1.9% vs 1.9%
  • Longer run PCE inflation median at 2.0% compares to previous forecast of 2.0%
    • 2017 median PCE inflation 1.6% vs 1.9%
    • 2018 median PCE inflation 2.0% vs 2.0%
    • 2019 median PCE inflation 2.0% vs 2.0%
    • 2017 median core PCE inflation 1.7% vs 1.9%
    • 2018 median core PCE inflation 2.0% vs 2.0%
    • 2019 median core PCE inflation 2.0% vs 2.0%

Some other observations:

  • Fed says it’s ‘monitoring inflation developments closely’
  • Fed raises target range for federal funds rate to 1%-1.25%
  • Fed: labor mkt continued to strengthen, job gains moderated
  • Fed: economic activity rising moderately, spending picked up
  • Fed says balance-sheet rolloff caps would start at $10b/month

*  *  *

Here is Neil Dutta of Renaissance Macro explaining what he think is the highlight:

The main development in the statement is that they are “monitoring inflation developments closely” in the second paragraph. In our view, this means they are not going to follow through on hikes if core inflation continues to disappoint.

* * *

Meanwhile, the fallacy of Fed data-dependence is exposed...

And the yield curve has collapsed in policy-error-style...

As of last night, the market was pricing 1.48 rate hikes in 2017 (including today), heading into the print, it was anticipating just 1.28 rate hikes (including today) following the dismal data this morning...

*  *  *

Full FOMC Statement redline below...

 

 

 

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P Rankmug's picture

How the Fed Works

“The ability to create money out of thin air without restraint combined with the dollar’s status of reserve currency is what has elevated the Fed to master of the universe in a fiat world.”

http://manonthemargin.com/how-the-fed-works/ 

Deathrips's picture

They steal lives with fake money.

Kill em all or quit using their monetary controls.

 

Maybe both...

 

RIPS

BaBaBouy's picture

Time To End This Bi-monthly Circus: End The FED... End The FED... End The FED...

JRobby's picture
  • *FED SAYS IT EXPECTS TO START SHRINKING BALANCE SHEET THIS YEAR

Who is going to buy the shit??? With what $$$????

jeff montanye's picture

and the mistake they made in the late thirties was that they raised interest rates too much.  well, that and ww2.

somehow there seems like there ought to be a better way to end a depression.

eclectic syncretist's picture

JANET YELLIN'S BRAIN EATING JIMINY CRICKET SAYS: "IF WE PRETEND LIKE EVERYTHING IS OK NOW THEN WHEN WE ARE TESTIFYING UNDER OATH AFTER THE CRASH WE CAN ALWAYS GET AWAY WITH LYING BY SAYING 'EVERYTHING SEEMED FINE, THAT'S WHY WE WERE RAISING RATES'".

Tall Tom's picture

 

 

There is a much better way.

 

Let it happen and do not interfere. Allow failed Financial Institutions to fail. The system resets naturally as the people will adjust to the conditions and still do essential commerce.

 

The Great Depression was as lenghthy as it was due to direct Government interference and "misguided policies" from a Central Bank. {Personally I believe that they were intentional in order to create the war so that they may profit.)

Lurk Skywatcher's picture

Technically, if bonds crash at the same time as stocks (1940's and 1970's), then the balance sheet would shrink... no?

MFL5591's picture

The Wall Street tribal memebers believe it and will trade it and hurt you and me!

rubiconsolutions's picture

So let me get this straight, the Fed expects to unwind and sell these [cough] "assets" which are denominated in fiat dollars to people who will buy them with fiat dollars. Is that right? I mean really, you can't make this shit up. It's the central bankers version of "whack-a-mole" except the only one getting clubbed to death is you and me.

jeff montanye's picture

it could be hell but it still may have to be done.  something should replace it as lender of last resort but it needs to be controlled by the electorate of the country.

bamawatson's picture
Brad Wenstrup and Steve Scalise were both on the field for the shooting. Wenstrup wrote an article a week ago "Human Trafficking: As Easy as Ordering a Pizza" Scalise just made a video on his youtube about fighting human trafficking
jeff montanye's picture

seriously i think we've got them on the run, forty percent approval rating is ok at this stage.  people are so conditioned to a less stressful political climate.  history is sometimes not exactly democratic.

who killed seth rich?

KimAsa's picture

Oops. Somebody getting a bit too close to the pedo ring?

#pizzagate
#dontgettooclose
#whokilledsethrich

Implied Violins's picture

...and of course, this monumental rate hike takes place in virtual silence, thanks to said shooting.

Almost like it was planned that way, or something.

Peacefulwarrior's picture

There is definitely a parallel to many of the Marvel Comic book plots to control the Universe and FED actions.

Endgame Napoleon's picture

We can expect to see comments about what Janet Yellen would look like in a female SuperHero get up, throwing men over her shoulders like these "realistic" depictions of females. Actually, it would make a good political cartoon. Or, maybe, it should be Merkel, throwing all the male EU leaders around like rag dolls, especially the Greek one. Macron's wife flies in to rescue him.

eclectic syncretist's picture

A 0.25% increase on 20 trillion in public debt means we and our children are expected to pay the criminal banksters another 5 billion every month. Nice job Yellin. Where do the banksters practice baseball?

asteroids's picture

Bingo. In a few weeks, they'll have discovered no "ill" effects. Credit rates will go up, banks will say "do it again"!!!

sodbuster's picture

All news is good news....................

booboo's picture

Kash n karri plays his part perfect, bitches about the fed policy becomes a board member and wants to keep rates the same

Justin Case's picture

One of the chief virtues of a gold standard is that it serves as a restraint on the growth of money and credit. It makes runaway government deficit spending and major monetary catastrophes such as hyperinflation practically impossible.

jeff montanye's picture

yes but we have grown too powerful for a true gold standard.  there is too strong a constituency for inflation. 

let the governments have their fiat currency, however determined (and this is no small business: fractional reserves, debt free money, etc.) but gold is transparent and price uncontrolled.  and gold mining is held to high labor and environmental standards.

DescendantofthePatriots's picture

All in favor of a multinational, universal, decentralized blockchain substitution say "AYE"

 

AYE

GooseShtepping Moron's picture

You can count me the fuck out of that one. Stamping a serial number on every transaction in the world is far more Orwellian than Orwell himself ever dared to dream. I can't imagine why anyone would favor that.

(And I'm not the one who junked you.)

TahoeBilly2012's picture

But it's the "fair" thing to so, said every idiot liberal ever. Totalitarianism is needed for elegant redistribution. Redistribution is needed because of corporate dominance. 

techpriest's picture

Corporate dominance? How many companies in the DJIA from 50 years ago are still there today?

Insurrexion's picture

Exactly.

So, why does anyone care?

Kaiser Sousa's picture

la, la, la, la, la, la, mother fuckers...(hands over ears)

STILL BUYING GOLD & SILVER...

DEATH TO THE MONEYCHANGERS.

RawPawg's picture

As Always

My Hedge Trains NEVER Stops

btw...How Ya Been,My Brutha?

Kaiser Sousa's picture

good man, thanks 4 inquiring...

spending more time watchin from the side as opposed to posting...

hope ur good bro...

keep stackin...

mtndds's picture

Phuck, they got me.  Now they have a new word MONITORING instead of TRANSITORY.  I give up.

Kaiser Sousa's picture

dont give up...

get even...

dump ur debt coupon dollars for what they dont want u to replace them with...

PHYSICAL GOLD...

PHYSICAL SILVER...

Crypto-World-Order's picture

Will gold ever break 1500 in your lifetime again? The khazaar witch has you by the nutsack.

Kaiser Sousa's picture

last i checked an oz of Gold bought u they same amount of whatever it did 100 years ago...

how bout the Federal Reserve Note?

oncemore's picture

Yes, no measurable inflation of gold. Who would dispute it?

actionjacksonbrownie's picture

I guess it depends how old you are, and what fate has in store for you. It may break $1500 in my lifetime, but not likely before I am forced to sell the little I have just to keep from going to the food bank. PM's are in a coma for the foreseeable future.

 

And seriously, who would have believed PM's would decline on a .fed pie-whole announcement? I mean, what are the chances of that happening???

Crypto-World-Order's picture

When you have unlimited paper  in the form of slv and gld, its going to happen. Kaiser avoided that answer lol

HardAssets's picture

Only because people have been brainwashed into believing their made-up-outta-Nothing 'debt' is real.

If or when people see through that fraud, it's all over for the banksters and their lawyer/liar/politician errand boys.

jeff montanye's picture

precisely.

and, for some upthread, paper gold only works until the holders stand for delivery.  

webbie's picture

Come on man that narrative is soooooo played! Cognitive Dissonance is a mathuah! 

SIlver will be man-made in the next decade, the technology is fastly approaching. Whaddah gonna do then???

 

Stack cryptos is a better suggestion

 

rubiconsolutions's picture

"SIlver will be man-made in the next decade...."

Yeah, right about the same time Tesla is profitable.

 

Silver Savior's picture

Yep. It always feels good exchanging worthless reserve notes for something real. Love it. I am not afraid to spend big on it either.

tropicthunder's picture

You mean silver aka "beaner gold". Yeah what a great investment.. Its at the same level that it was in 2008, 9 fucking years ago!

Kaiser Sousa's picture

and how much Purchasing Power has the fucking dollar lost over that same time frame dumb ass...

 

http://www.usinflationcalculator.com/

Silver Savior's picture

I will tell ya what. I am always looking to scoop up all the beaner gold I can get!

That's a new one. I just about spit out my coffee. Thanks. 

Bay of Pigs's picture

Silver was at $21 in 2008 when Bear Stearns went tits up. Silver then got clobbered to $8.88 that fall. Finished the year around $10 bucks. It has never seen those levels since.

Try some facts sometime instead of talking out of your ass.

https://en.m.wikipedia.org/wiki/Bear_Stearns