Since the last FOMC meeting, on December 15th, Gold is the lone asset-class that is higher while bonds and stocks have been monkey-hammered and the dollar is weaker...
All US equity markets are lower since the last Fed meeting with Tech/hyper-growth hammered and all the bubble-markets blowing up.
Financial Conditions have tightened significantly since the last Fed meeting (after easing dramatically into the Santa Claus rally)...
Rate-hike expectations have soared since the last Fed meeting too with March now fully priced-in and more than 4 hikes priced in by year-end. The last few days of market weakness prompted a dovish drop in rate-hike odds, but the last two days have seen it shift hawkishly once again...
And before we get to The Fed's decision, there is also this chart to consider... President Biden's approval rating has crashed below that of Trump's...
We suspect the politicians will learn that lack of jobs is way worse for being reelected than inflation... and indirectly pressure The Fed (if they haven't already) to walk-back the QT and rate-hike trajectory plans... at least until after November maybe.
So what did The Fed say/do...
The market is pricing-in liftoff in March (followed immediately by QT) and four rate-hikes by year-end (just like The Fed's "Dots") - did Powell and his pals jawbone any of that hawkishly or dovishly today?
In a word: NO.
The Fed says it "will soon be appropriate" to raise funds rate.
The Fed says asset-purchases will end in March...
And The Fed says that balance-sheet-shrinking (QT) will start after rate-hikes commence.
The Fed intends primarily to hold Treasuries in the longer run.
Finally, The Fed believes, "overall financial conditions remain accommodative."
All of which means the timeline remains as follows:
With the QT schematic forecast to be as follows (given the roll-off, roll-over plans):
Arguably the Fed was 'dovish' because it did not bring forward the end of QE or explicitly name a time for QT. Mohamed El-Erian is not happy that The Fed wasn't more hawkish...
.#Fed signals— Mohamed A. El-Erian (@elerianm) January 26, 2022
Start of a hiking cycle "soon" (read March)
Asset purchases (QE) to end in early March
Nothing new on balance sheet reduction (QT)
Per my Monday @FT post:
It's what I expected but not what I think they should have done
Fed falls further behind economic developments
Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence and a former adviser to Richard Fisher, the former president of the Dallas Fed, says:
“The Fed’s biggest challenge is figuring out how to implement policy measures that are hawkish enough to lower inflation, but that also keep financial markets afloat, because volatility in financial markets may bleed into an economy that is already showing signs of slowing. The Fed is faced with choosing the lesser of two evils."
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Of course, we know what the stock market will do... at least to start with anyway...
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Read the full redline below: