'Dovish' Fed Admits Inflation Weaker, Says Balance Sheet Unwind To Start "Relatively Soon"

Tyler Durden's picture

With 'zero' expectations for a rate-hike today, all eyes are focused on any shifts in The Fed's balance sheet normalization timeline ("balance sheet unwind to start relatively soon") and its most-recently-dovish inflation outlook (following the weak June CPI print, The Fed now says "inflation seen rising to 2%" but is weaker").

Key takeaways from FOMC:

  • Balance sheet reinvesting to continue "for the time being," normalization plan to begin "relatively soon" which most sellside desks means a September announcement, leaving December for the next rate hike.
  • Headline and core inflation "have declined," and the word "recently" after this phrase from the June statement is omitted today. This has been taken as confirmation that the Fed admits the recent dip in inflation may extend longer than the Fed expected and is the reason for the sharp drop in the USD.
  • Inflation running below 2%, the descriptor tweaked from the "somewhat below" in the June statement
  • No dissenters

Additional headlines

  • Fed holds rates unchanged, repeats inflation seen rising to 2%
  • Fed: labor mkt strengthened, activity rising moderately
  • Fed: job gains have been solid, unemployment has declined
  • Fed: household spending, fixed investment continued to expand
  • Fed: overall and core inflation declined, are running below 2%
  • Fed repeats mkt-based inflation compensation gauges remain low
  • Fed repeats survey-based inflation measures little changed
  • Fed repeats inflation to stay ‘somewhat below’ 2% in near term
  • Fed repeats risks to outlook appear ‘roughly balanced’

Here is a snap reaction from Citi:

Judging from the USD’s inability to rally, one might conclude that the market sees this as similar enough to June, while minding a slight dovish tweak when it comes to prices. In quick summary:

  • Inflation language – small dovish downgrade from inflation is running “slightly below” 2.0% to now “running below.” However, note that there is no change to balance of risks.
  • Employment language – slight hawkish upgrade. From “gains have moderated but have been solid” in June to simply “gains have been solid" in the July statement.
  • No changes to rates guidance
  • Insert of “for the time being” in direction regarding the balance sheet. Also insert of “relatively soon” for balance sheet normalization. Largely expected by the market as we noted.

Expectations were The Fed will reveal the timing of its balance sheet unwind in September and wait to hike interest rates again until December.

Intriguingly, The ECB decided to shake up the market just minutes before The Fed's statement...

  • *NOWOTNY: EURO-AREA GROWTH HAS IMPROVED BUT INFLATION LAGGING
  • *NOWOTNY: ECB MUST RECONSIDER POLICY WITH DEFLATION RISK GONE
  • *ECB'S NOWOTNY SEES RISK OF DISTORTIONS WITH NEGATIVE RATES
  • *ECB'S NOWOTNY SAYS AGREES WITH WEIDMANN WHO SAID THIS IS TIME TO SLOWLY GO OFF GAS
  • *ECB'S NOWOTNY SEES NEED TO DISCUSS TECHNICAL ASPECTS OF QE END

Which sent the USD lower...

*  *  *

Rate-hike odds for July have been zero for almost two months...

 

Notably the Fed Balance sheet really starts to shed assets in August (double July's) then accelerates again in November bigly...

 

Since The Fed hiked rates, 'hard' data has continued to weaken (even relative to marked-down expectations) as 'soft' data has bounced hard...

 

Since the June rate-hike (and The Fed's warning about stretched valuations), the S&P is higher and bonds and bullion are down (equally)...

 

But the dollar has done nothing but freefall...

 

Will we get a full card?

h/t @PrestigeEcon

*  *  *

Full Redline Statement below:

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NickyGall's picture

 Here is an interesting look at what Janet Yellen had to say about one of the significant dangers facing the U.S. economy:

 

https://viableopposition.blogspot.ca/2017/07/janet-yellen-on-federal-deb...

 

This is the one overriding factor that will impact the ability of the U.S. economy to grow in the future.

BullyBearish's picture

BLOCKCHAIN this &itch out of existence...

Jim Sampson's picture

Didn't make it far, did you Janet?

mtl4's picture

The cure for the last crisis always becomes the cause of the next one.........here's your massive USD rally.

 

Beam Me Up Scotty's picture

2% my ass. Try renting an apartment or buying a house or paying for your Obamacare. Orwellian doublespeak.

Scrimpy's picture

Why on earth would anyone believe the greedy, racist, anti-semitic, 'nazi jew Banksters would tell them the truth about the FED's plans?

 

ARE YOU PEOPLE F'N STUPID?

JRobby's picture

"I'll take What is Total Psychological Detatchment to the Point of Delusional for $500 Alex"

 

Jim Sampson's picture

Yes, yes they are.  

 

As Carlin said...  "Think of how stupid the average American is and realize half of them are stupider than that."

Erek's picture

"Countless people will hate the new world order and will die protesting against it. When we attempt to evaluate its promise, we have to bear in mind the distress of a generation or so of malcontents. --- The term Internationalism has been popularized in recent years to cover an interlocking financial, political and economic world force for the purpose of establishing a World Government."  -- H.G. Wells, The New World Order, 1939, Alfred A. Knopf – New York

 

Gee! The more things change, the more they stay the same.

Don Pancho's picture

Well, how is this a surprise to anybody here?  I’m not sure who had the best calls.  Silver Doctors was pretty close though: http://www.silverdoctors.com/gold/gold-news/metals-market-update-hump-day-meets-fed-day/


I think ZH had an interesting post about  a dollar rally, but in the end…


HOW THE HECK ARE THEY GONNA KEEP MARKETS LOFTY FROM HERE???


Bwahahahahaahaha….

 

Yo Quiero Taco Bell

Bay of Pigs's picture

All lies and utter bullshit.

Inflation is raging well above 2%. Let's try double or triple that number.

oddjob's picture

Flat screen TV's now comprise 98% of the CPI.

Pollygotacracker's picture

Chapwood Inflation Index calculates 8-11% inflation. Seniors should be receiving huge cost of living adjustments on their social security. Haha. They don't receive interest on saving, either. The Fed are pro liars. 

FreeShitter's picture

Relatively soon = never

debtor of last resort's picture

Well, theoratically, they could unwind it to the ESF.

venturen's picture

Hillary and Obama are going to jail Relatively Soon

jamesmmu's picture
Bank Deregulation Back in Vogue: It’s time to dance the last fandango!

http://investmentwatchblog.com/bank-deregulation-back-in-vogue-its-time-...

syzygysus's picture

<- DJIA 66,666 here we come!

<- DJIA 666 here we come!

 

Racer's picture

Inflation is a TAX  and any of it is theft of your money

johnlocke445's picture

This promise to "unwind the balance sheet very soon" is the same 7 year promise to raise interest rates. Don't expect it to happen any time soon. We will only be hearing about the empty promise of the great unwind for the next 7 years.

GodHelpAmerica's picture

Fed is about to get steam rolled by inflation, and there's nothing they will be able to do about it.

Beam Me Up Scotty's picture

No they won't. They will say inflation is running at 2% from here until eternity. It's just a number and when you live in a society that lies, you get what you pay for. Seniors will be eating cat food on ther COLA increases.

JackMeOff's picture

Its ok, only $4.5 trillion to unwind... no worries mon!  #packinganotherbowl

 

https://www.youtube.com/watch?v=L3HQMbQAWRc

small axe's picture

in the latest low-volume momo algo we trust ... good solid stop-hunting HFT can make you a believer in anything

 

RawPawg's picture

i can't fucking believe i'm still watching all this "playing over,and over...and over"...again

i really need to go and just find me a "pocket scratch" job(money getting tight to buy more Silver) 

Bricker's picture

Is it just me, or is anyone else tired of the lying charade? Inflation is rampant and wage growth is weak. The end result is a weak economy.

Goldennutz's picture

Blah...blah...blah...and more blah...blah...blah...

mayhem_korner's picture

The sun is going to burn out relatively soon, too.

Grandad Grumps's picture

Maybe the Fed should just stop pretending and just "poof" their balance sheet. What came out of thin air can go back to the same place.

GoldHermit's picture

Nice Fed speak, let me translate...

We're screwed and we know it.  We are getting the ink out and oiling the printing press now.  Listen for the sound of helicopters.

Turin Turambar's picture

relatively soon?  Sounds like tomorrow, as in tomorrow is so close but it never actually gets here.  There will be no unwinding only more printing and buying.

 

World citizen's picture

All as planned and anticipated... now just wait for a September/October dip, as it happens very frequently, and the time of balance sheet rebalancing will change to... "eventually"

We all know that central banks work as one... Janet, Kuroda and Draghi, among others, will just continue to devaluate currencies in such a way that the overall balance remains more or less intact. 

Result is not a bubble, but a different world order where central banks, by several means, are actually share and bond holders of critical importance. As long as they keep buying debt and print money, short of some major or unexpected event, everything will keep going on as before.

If you think about it, it's not a bad replacement of the Enron style disasters of the past... from corporate greed to central banks control...

Ahum, maybe the so-called free market is dead, yes...they call it collateral damage...

 

Rick Cerone's picture

Gotta protect the banks Janet!