Reflecting on the farce that was the FOMC statement and press conference yesterday, Bloomberg's Richard Breslow jabs that it appears Janet Yellen's 'splaining can be summed up, "we can’t know what considerable time means because we’re told it’s a very nuanced concept." In other words, we are just not smart enough, leave it to the PhDs in the room. Even Goldman was struggling to find the dovish side reflecting that market movements were more driven by positioning than anything new policy-wise. As Breslow sums up so eloquently, "a 'true normal' balance sheet remains a very distant dream, perhaps end of decade, and who knows if they’ll ever get back there."
As Richard Breslow notes,
Fed mtg this week had very little new despite them playing around with the dots and obfuscating the ranges they imply. They are data dependent.
We can’t know what considerable time means because we’re told it’s a very nuanced concept. They did acknowledge inflation is slowing; I still reiterate that’s only by their definition, as nothing that I buy seems to be any cheaper.
Yellen did acknowledge there is room for labor mkts to strengthen, and I found myself wondering who was sillier last night, me or the people who did the dots? As I studied the dots in a side by side comparison, I realized first grade was a long time ago, and I wasn’t likely to receive enlightment.
Are they going to tighten in 2015? No if data is blah, yes if data strong -- and we knew that. As Goldman Sachs’s Jan Hatzius says, the reaction of the mkt was more indicative of the positions people had on than reaction to the Fed
I also was struck by comments about balance sheets staying bigger for longer; this means they will continue to stay very involved in mkts. A “true normal” balance sheet remains a very distant dream, perhaps end of decade, and who knows if they’ll ever get back there.
And here is Goldman's reflection on why did the market sell off?
The information released today was--except for the dots--at least as dovish as expected. The selloff in the Treasury market therefore likely tells us more about the market than the Fed. That is, market expectations for the meeting were probably not as hawkish as suggested by pre-meeting surveys.
Did the FOMC provide any new signals about monetary policy?
No. The forward guidance in the FOMC statement was unchanged, as the Committee kept the "considerable time" and post-liftoff guidance word for word, and Chair Yellen opened the press conference stating that the released information is "not meant to convey any change in the stance of policy." While the median of the funds rate projections (or "dots") drifted up in 2015 and 2016--by 25 basis points (bp) and 37.5bp, respectively--we would not put too much weight on this. First, the dots that most likely capture the views of the FOMC leadership--projections 4 to 6 from the bottom--moved up very slightly in 2015-16 and most forecasters had anticipated an increase. Second, the change in the dots is difficult to assess as they are now expressed as the mid-point of a range. Yellen consequently downplayed the "relatively little upward movement in the path" of funds rate projections, suggesting it is "broadly in line with what one would expect with a very small downward reduction in the path for unemployment and a very slight upward change in the projection for inflation."
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The Fed has reached peak transparency and that is no longer a good thing as the Emperor's clothes are starting to show.
