Unanimous Fed Holds Rates As Expected; Does Not Hint At Imminent March Rate Hike

With gold gaining, dollar declining, a flattening yield curve, and a market not buying The Fed's 3-hikes plan, Janet and her band of merry-men (and women) had to do something to get investors' confidence back to signal 'March is live', as Trumponomics dominates the conversation, but it appears they failed.

  • FED SAYS CONSUMER, BUSINESS SENTIMENT HAVE IMPROVED OF LATE
  • FED REPEATS NEAR-TERM RISKS TO OUTLOOK `ROUGHLY BALANCED'
  • FED SAYS MARKET-BASED INFLATION GAUGES `REMAIN LOW'

It may have failed, however, because the biggest highlight of the February statement (link) appears to be the line that "Market-based measures of inflation compensation remain low", which has been revised from the December version to remove the "measures have moved up considerably" language in what may be a dovish revision, and as such it appears the Fed is converging with the market's view of just 2 rate hikes in 2017.

On the other hand, the Fed changed its "inflation is expect to rise" to "inflation will rise to 2 percent over the medium term", which appears to be a hawkish counterpoint.

The Fed also added this entirely new language: "Measures of consumer and business sentiment have improved of late", suggesting the Fed is just as focused on "soft" data as it is on actual "hard" data.

Also, as noted above, and as expected, the Fed added that "Near-term risks to the economic outlook appear roughly balanced."

But overall, the Fed left little guidance as to when it may hike rates next, and certainly did not presage a March hike as imminent based on today's language.

While most investors are confused by it, there was no mention of the uncertainty around fiscal policy, which drew lots of questions at Yellen's December press conference and will certainly be the focus during Yellen's congressional testimony in two weeks.

Finally, the Fed did not provide any guidance whether it would normalize the balance sheet, and instead kept the language constant from last month saying:

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way.

For the full summary, scroll to the bottom for the redline comparison.

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As a reminder, Bloomberg offers this Fed Spectrometer...

 

Since The Fed hiked rates, the yield curve has flattened dramatically...

The dollar is down...

 

And gold is the best performer by far...

 

And the market remains unconvinced at the 3-hike plan...

So a flatter curve and soaring gold? "Policy error" anyone?

Additional headlines:

  • *FED SAYS JOB GAINS REMAINED SOLID, UNEMPLOYMENT STAYED LOW
  • *FED: INFLATION INCREASED IN RECENT QUARTERS, STILL UNDER 2%
  • *FED REPEATS BUSINESS INVESTMENT HAS REMAINED SOFT

While the Fed remains far from a nomralized rate, and balance sheet, environment, the number of words in its statements is clearly declining:

Full Redline below: