JPM On The FOMC Announcement: The First Dovish Dissent?
With less than an hour until the 12:30pm FOMC announcement, the time to place your bets is here. The market, up almost 2% already has, and has ignored some truly horrible news out of Europe, betting that the Fed will do something, anything, to boost the global recovery. We are skeptical. Which troubles us because so is everyone else. Below we present the opinion of JPM's Michael Feroli who is also in the same boat: expects no action, yet in that case he anticipates the first Dovish dissent since the GFC (everyone knows the three Hawks on the FOMC are very much mute and will continue to dissent until the Fed actually hikes rates). As a result one thing the Chairsatan may relent to, is an extension in the ZIRP rate guidance from mid-2013 to late 2013. Regardless, we will cover the announcement, we hope the FOMC site does not crash, and as always fade the first through fifth kneejerk market responses to the statement.
In recent weeks the doves on the FOMC have become more vocal. If the Committee takes no action today -- which is our expectation -- this raises the risk that we could see a dovish dissent, which would be the first since Rosengren did so in late 2007. The most likely candidate for such a move is Evans. Next in line would be Tarullo, though it is rarer for Governors to dissent than for Reserve Bank Presidents to do so. Raskin has also expressed some strong dovish views lately, though a dissent from her seems a long shot. Dudley and Yellen may be sympathetic to the motives for a dovish dissent, though their leadership position will almost surely prevent them from actually casting a dissent. All in, five of the ten voting members might at least sympathize with a dovish dissent; when you count the three hawks, that leaves only Bernanke and Duke in the center.
If the Chairman wanted to throw the doves a bone (block that metaphor!) one simple action would be to extend the mid-2013 rate guidance to late 2013 -- this wouldn't be much but at least it would convey a sense that the Committee is not content with the employment outlook. Another outcome that could prevent a dovish dissent would be if there was a sense that the communications sub-committee were making progress in moving the Fed rate guidance in a way that might eventually be more in line with Evans' trigger strategy. In any event, hawkish dissents from Fisher or Plosser are still the more likely outcome, but it wouldn't be a complete surprise to see a dovish dissent.