Full Preview Of Today's "Historic" FOMC Meeting

It is virtually guaranteed that on Wednesday the FOMC will make history by officially announcing the Fed's plan to begin shrinking its balance sheet through the gradual phasing out of bond reinvestments, which however in a world in which other central banks continue to pump $125 billion per month, will hardly by noticed by markets at least in the beginning.

So aside from the start of balance sheet renormalization what else should traders expect tomorrow? Earlier today, we showed a cheat sheet from ING that broke down the various USD bullish and bearish permutations of how Yellen could still surprise the market, including the Fed's signalling on policy rates, economic projections, a shift in the "dots", comments on asset prices and, last but not least, whether Yellen will stay or leave when her term expires in Feb 2018.

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For those seeking a more in-depth preview, here courtesy of RanSquawk, is the full "historic" September 20 FOMC Preview.

  • FOMC likely to maintain rates between 1.00-1.25%; there will be focus on whether it flattens the rate hike trajectory
  • The formal announcement of balance sheet reduction is expected; it’s unclear what size the Fed wants to return it to
  • Growth and unemployment projections unlikely to see major changes; inflation may be trimmed again


  • Money markets price a very slim chance that the FOMC will hike rates this week, with an overwhelming 98.6% implied probability that the Federal Funds Rate target will remain between 1.00% to 1.25%. Looking ahead, markets now assign a 58% chance that rates will be lifted again in 2017.
  • Federal Funds futures currently price in just two more hikes over the Fed’s current forecast horizon; the FOMC’s June forecasts pencilled in seven rate rises over that timeframe. Note, this week’s forecast will extend the horizon out to 2020.
  • Given the cautious tone of comments from FOMC participants in recent weeks, it will be interesting to see whether the central bank lowers its trajectory for the rate path down, in line with the market’s view. However, analysts at Barclays do not expect a major revision to the median view of the rate profile, but sees the average falling: “We expect the median policy path to remain unchanged, but the average policy path should decline. We believe the average funds rate will decline by 15-25bp across the forecast horizon, and we believe as many as seven participants may signal that they prefer no further rate hikes this year (against nine participants who view one or more as appropriate).”


  • It is an almost a forgone conclusion that the FOMC will formally announce the start of its balance sheet programme; indeed, ‘several’ were ready to make the announcement in July. The Fed has also been given some leeway not that the debt ceiling has been extended until December.
  • In June, the FOMC suggested a plan where it will allow $6bln of maturing Treasuries and $4bln of maturing MBS to roll-off per month for a three-month period; that amount would then be raised to $12bln for Treasuries and $8bln for MBS for another three months, and after a year, redemptions would be capped at $30bln for Treasuries and $20bln for MBS per month.
  • The plan ensures the Fed wouldn’t have to outright sell any of its holdings immediately, which would cause a market reaction. In fact, Fed commentary suggests that the central bank wants to avoid any “shock and awe”; Loretta Mester (non-voter) said the intention is to set the policy, then “forget it”, suggesting that balance sheet would not be an active policy tool.
  • Some questions remain unanswered; for instance, what size the FOMC is ultimately seeking to cut the balance sheet to. It is currently around $4.5trln; pre-crisis, it was around $800mln, but it is unlikely that the Fed intends to bring it down to that size. It seems as though the FOMC is still undecided: William Dudley (NY Fed, permanent voter) sees the balance sheet falling to between $2.4trln and $3.5trln – a wide range, but there doesn’t seem to be any firm consensus as yet.


  • The Fed meets amid an improving tone in US economic data: The labour market has been ticking along nicely for some time, with the rate of joblessness beneath the Fed’s estimate of NAIRU. The second estimate of growth in Q2 was revised higher to 3.0%, well above the Fed’s longer-term view between 1.8% and 2.0%. Inflation has been the Achilles heel, but there are some signs of improvement here too. Recent CPI data showed upside surprises to headline and core rates; but the Fed’s preferred measure – core personal consumption expenditures – lingers at the lowest since Q4 2015 at (1.4% vs Fed’s June forecast of 1.7% in 2017); additionally, wage growth continues to disappoint, which may give the Fed ammunition to remain dovish.
  • Analysts at Oxford Economics say “a key focus will be on the FOMC’s view of recent inflation readings and its degree of conviction about whether inflation will hit the 2% target over the medium-term,” adding “this in turn will underpin the committee’s decision about raising rates further this year and the pace of rate increases next year.” FOMC Chair Janet Yellen has previously attributed the weak inflation to temporary factors and called for patience. Many will look out for commentary on whether the Committee has reached a consensus on the extent to which low inflation is transitory, and how much patience should be extended. The likes of Neel Kashkari (voter, dovish) expressed outright concerns on inflation, whereas centrists like William Dudley see a return to target in the medium-term; others, like Robert Kaplan (voter) want to see more evidence before committing to a tighter monetary policy path.
  • It is worth noting that the Fed’s forecast horizon will be extended out to 2020, and the FOMC’s June forecasts and the current market view are generally in line, with the exception of inflation, suggesting growth and unemployment forecasts will be little changed, though its short-term inflation views may be cut.


  • Chair Janet Yellen will likely adopt her usual balanced approach in her press conference, according to SGH Macro Advisors, to ensure that the FOMC still has the option of a rate hike in 2017. “She will certainly give voice to dovish concerns over the persistence in low inflation and the possibility of a new inflation dynamic emerging,” SGH says, “but on balance, we still expect her to modestly tilt her remarks to a base rate path that would warrant a possible third-rate hike in December.”
  • In addition to inflation, the Fed’s forecasts, and the immediacy of near-term rates hikes, Yellen may also be quizzed on FOMC personnel following the early resignation of Stanley Fischer. Tradition dictates that outgoing Governors do not usually attend the last meeting of their term; however, the Fed has confirmed that Fischer will be in attendance, though it is unclear whether he will be submitting economic forecasts.
  • The upshot of Fischer’s resignation means that there would be four vacancies on the Fed’s Board of Governors; but additionally, there remains doubt around Chair Yellen’s own position when her term expires next year, and on top of that, the position of President of the Richmond Fed (which will have a vote in 2018) remains unfilled.

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Finally, here are select sellside research takes on what to expect:

  • Barclays: We believe the Fed will begin balance sheet normalization as described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans. Beyond this, the committee will likely engage in extensive discussions about how much the underlying trend rate of inflation has slowed. We do not believe the committee will reach consensus on the extent to which slower inflation is transitory and, in turn, how much “patience” is needed before proceeding with further policy rate normalization or whether it is worth the risk to financial stability to run the domestic economy hotter. Yet, we believe some members will reflect their view that some of the slowing in inflation will be persistent and mark down modestly their inflation forecast for 2018. Although we do not expect the median policy rate path to change, we do expect the average federal funds rate projection to decline.
  • Credit Suisse: We expect the Fed to keep the fed funds rate unchanged and to begin reducing the size of their balance sheet. We expect an announcement in line with their June policy normalization plan which stated that reinvestments are ended up to a gradually-increasing cap. The caps are likely to begin at a modest $10bn per month, but are scheduled to rise every quarter before levelling off at $50bn. Aside from the balance sheet reduction, we expect a dovish tone from the September meeting.
  • Goldman Sachs: We expect the FOMC to officially announce next week that balance sheet runoff will begin in October. As the Fed has already communicated extensively about its plan for a gradual and predictable runoff, we expect markets to focus instead on the outlook for the federal funds rate. The key question is whether the committee’s expectations for the federal funds rate have declined in light of the surprising deceleration in the inflation data since the start of the year. Several Fed officials have expressed reduced confidence in the view that the recent decline is a blip and that inflation will reaccelerate. Despite this week’s stronger-than-expected CPI report, Fed officials will still be looking at year-over-year core PCE and CPI inflation rates that are three tenths and five tenths lower, respectively, than in March. We therefore look for lower core inflation in the Summary of Economic Projections (SEP) and expect the “dot plot” to show a decline in the average projected funds rate path. While risks are tilted to the downside, we still expect the median projection to continue to show a third rate hike this year, 3 hikes in 2018 and a longer-run funds rate at 3%. Ultimately, there are three reasons why we expect only minor dovish changes. First, several influential FOMC members have highlighted that there is not yet enough data in hand to abandon the view that the economy is close to full employment and that diminishing spare capacity will gradually push inflation back up to the target. Second, growth momentum has remained very firm and while hurricanes will make the activity data noisier in the near term, they are unlikely to derail firm underlying trend growth. Third, financial conditions have continued to ease even as the FOMC moved to a path of quarterly tightening last December.
  • ING: We think this may be one of the more difficult meetings and press conferences for Chair Yellen to navigate, not least because of the growing dichotomy within the FOMC over the appropriate near-term policy approach. Our base case is for the doves to prevail, with a lower conviction over the pace and extent of future policy tightening visible in the Fed's dot plot. While the median 2017 dot is still set to tentatively pencil in a Dec rate hike, we expect to see more members calling for a pause for the remainder of the year; anything more than five would suggest that hopes of a Dec hike stand on a fragile footing. More telling of a dovish shift would be if the 2018 dot also moves lower; here we require five or more members to downgrade their views over future policy hikes, a scenario that cannot be ruled out given the softer US inflation dynamics. What is highly likely is that we'll see the 2019 and longer-run dots moving lower – with Fed officials acknowledging that a 2% handle for the terminal Fed funds rate is more realistic in the prevailing US economic environment.
  • Morgan Stanley: Our US economists expect the Fed to announce balance sheet normalization at its September meeting. They also expect the median dots to remain as they were in June, with the Fed adding a final rate hike in 2020 (see FOMC Preview: Auto Pilot). In our view, the risks to this outcome are that the 2018 median dot falls to 1.875% from 2.125% and the longer-run median dot falls to 2.75% from 3.00%. To assess the risks, we constructed the September 2017 dot-plot scenario in Exhibit 4. First, we attempted to match up dots in 2017 with dots in 2018. This allows us to create the following scenarios we felt were reasonable. We assume: 2 more FOMC participants pencil in no further hikes in 2017 and decrease the # of subsequent hikes in 2018 to 2from 3; 2 participants keep the third hike in 2017, but decrease the # of subsequent hikes in 2018 to 2 from 3;and 2 participants decrease the # of hikes in 2017 to 3 from 4, but keep 4 hikes in 2018. Given we assumed only 2 more participants join the "no more hikes in 2017" camp, the 2017 median dot remains at 1.375%. However, given our other assumptions, half of the Committee ends up with a 2018 dot below 2.00% and half ends up with a dot above 2.00% – leaving the median between 1.875 and 2.125% versus its 2.125% position in June. It is possible that Randal Quarles is confirmed by the Senate and sworn in before the meeting, thereby allowing a 17th dot to be added. But, at this point, the Senate has not scheduled his confirmation hearing. As a result of our scenario analysis, we think there is a reasonable risk that the 2018 median dot falls by 25bp,even though it's not our base case.


NoDebt Tue, 09/19/2017 - 22:03 Permalink

If, in the fullness of time, this ends up being viewed as an "historic" FOMC meeting then I am the Pope.  EVERYONE KNOWS WHAT THEY ARE GOING TO SAY.  They leak this information WELL in advance (if you're willing to pay for access).Now, if they announce a 200 bps rate hike or QE5 tomorrow, OK, then I'm all wet on this and we can all truly say they did something "historic".  But the chances of that happening are about as likely as me NOT having a couple double vodkas tonight (very unlikely). 

Dickguzinya Tue, 09/19/2017 - 22:15 Permalink

Janet from another planetlook into your magic ballwhen will the economy takes its long anticipated fallwhen that day comesyou'll break a lot of heartsno longer just, from the smell of your farts. I'm a poet, and I didn't even know it.

coast1 Tue, 09/19/2017 - 22:19 Permalink

off topic, but going to post this a few times, put up with me...Tired of the global warming guy, and now there is proof he is wrong...I wish he was right, because here in the northwest was colder than usual last year, and it looks like we are getting another one...But proof now that the global warming poster is full of poopoo... https://www.naturalnews.com/2017-09-19-climate-change-science-implodes-… and gentlemen, we are in historic times, many of the lies from decades if not centuries are being exposed...who cares about the fed reserve, they are very worried because truth is coming out, mostly because of the internet...There are people out there that are willing to risk their lives and careers to tell truth now.....This is an interesting time to be alive.

rtalcott coast1 Tue, 09/19/2017 - 22:54 Permalink

They are not completely giving up...."....Hence, limiting warming to 1.5 °C is not yet a geophysical impossibility, but is likely to require delivery on strengthened pledges for 2030 followed by challengingly deep and rapid mitigation. Strengthening near-term emissions reductions would hedge against a high climate response or subsequent reduction rates proving economically, technically or politically unfeasible....."

In reply to by coast1

Manipuflation coast1 Tue, 09/19/2017 - 22:57 Permalink

OK, I agreed to read your post and liked it but now you owe me.  You have to read this on password cracking.https://arstechnica.com/information-technology/2016/06/how-linkedins-password-sloppiness-hurts-us-all/That's old news in the cyberworld.  It's worse now.  Take your time and just bookmark it if need be.  Even so, it makes you wonder how long before we all wake up and find our digital accounts have been drained of cash/bitcoin/credits.  You can't just start using gold and silver immediately.  You will need lead and steel first. 

In reply to by coast1

Mr. Crisp Tue, 09/19/2017 - 22:22 Permalink

"Our policies will continue to strengthen our rock-solid economic foundation" ...(wait for laughter)..."help our already prosperous workers achieve even greater financial security"...(wait for laughter)..."as well as brighten our children's economic future"..(punch line).

I Write Code Tue, 09/19/2017 - 23:17 Permalink

Well, ........ I guess it's OK by me, because they plan to do such an inconsequential tiny amount.  But what it is, is Janet has come to the wall, and she's not going to punch through or climb over, she's going to stop dead in her tracks and try to go backwards.The national debt is such that the Fed cannot really normalize or allow long rates to rise, they will exit the current attractor and uncertainy will soar to the moon.  But the alternative is all new and crazy stuff, and she just doesn't have the balls for it.If this is her last move she escapes without a black mark on her permanent record, that's I guess what this comes down to.

Manipuflation Tue, 09/19/2017 - 22:37 Permalink

Anyone ever check their junk e-mail for humorous scam offers?  I found a rather humorous example of one from "Janet Yellen" in mine.  Here is an excerpt.  "Meanwhile, after due scrutiny and verification, I confirmed that you have fulfilled all the necessary obligations that will enable the release of your payment to you, but yet your payment was not released to you due to one flimsy excuses or the other from the Bank officials in charge of your payment, because they had the intention of diverting your funds to their private accounts in order to satisfy their interest. You are however lucky that we the management of the Federal Reserve Bank detected their plans and therefore call for the submission of your payment file to us so we can personally handle the payment assignment to ensure that you receive your funds accordingly."Even the Nigerian scammers get it now!

Manipuflation helloimjohnnycat Tue, 09/19/2017 - 23:20 Permalink

So you must want to see the rest of it?  I like the Visa card part for $7000 a day part."Your payment files from three (3) different banks, NatWest Bank of London, Central Bank of Nigeria, Benin Republic and Federal Reserve Bank was compiled and submitted to my desk this month for review. The total sum owed to you by the 3 banks mentioned above was sum up to the tune of US$15,500,000.00 (Fifteen Million Five Hundred Thousand United States Dollars). Now the fund has been totally lodged in one particular Escrow account (non deductible) here in the Federal Reserve Bank on your name, while waiting for accreditation to your personal bank account in any part of the world. Meanwhile, after due scrutiny and verification, I confirmed that you have fulfilled all the necessary obligations that will enable the release of your payment to you, but yet your payment was not released to you due to one flimsy excuses or the other from the Bank officials in charge of your payment, because they had the intention of diverting your funds to their private accounts in order to satisfy their interest. You are however lucky that we the management of the Federal Reserve Bank detected their plans and therefore call for the submission of your payment file to us so we can personally handle the payment assignment to ensure that you receive your funds accordingly. Now, all modalities regarding your fund release has been put in place here in the Federal Reserve Bank , thus, your funds has been made ready for transfer in our sophisticated macro transfer system, what we need from you now is to provide to us the bank account of your choice which you want us to transfer your funds so we can expedite action for the accreditation of your funds into your account immediately. Below are the information needed now for your transfer. 1. Personal Details: Full Name: Country City Current Address: Age/Gender: Occupation: Direct Mobile Number: Passport Copy, ID card or DL: Secure Email: Email us on {mrsjanetyellen402@citromail.hu} Note: If you prefer to receive your funds in form of a Visa Card, we could load and ship your Visa Card to your address which will permit you a daily withdrawal limit of US$7,000 or write a draft check which can be deposited in any bank and send to you. In anticipating for your urgent cooperation Yours sincerely, Mrs Janet Yellen Federal Reserve Bank® " Nice touch with the trademark. The Nigerian scammers are using .hu now?  At any rate it is more creative than most of your typical scams.

In reply to by helloimjohnnycat

Alananda Tue, 09/19/2017 - 23:19 Permalink

Cute.  The "Tylers" put "historic" in "snark marks", then republished the piece without prior comments.  Hmmm.  Huffing and Puffing, just like Huffpost.  Sad.

Rebelrebel7 Tue, 09/19/2017 - 23:37 Permalink

Compounded interest is The 8th wonder of the world- those who understand it earn it, and those who do not pay it.- Albert EinsteinIf America has a capitalistic economy, we must really suck at creating capital with a $21 trillion national debt and $500 billion trade deficit in 2016! Where is the capital?!Wake up and drink the coffee! Smelling it doesn't work!This is not capitalism! This is Mussolini style debt financed militaristic bankism!Lying about history and reality does not change history or reality, it only changes the person who is lying , and for the worst! Hillary Clinton is a walking example of this!The fundamental flaw in main stream economics is that it begins by accepting  the validity of the Federal Reserve Act of 1913, the IMF, BIS,  and World Bank which are all part of the privately owned banking cartel charging interest to sovereign nations which is nothing more than a bank tax on citizens for which they have no right to claim, therefore making it a circular argument based on a logical fallacy!1.We must repeal the Federal Reserve Act of 1913 and abolish the Federal Reserve. Congress must resume its responsibility and coin money and regulate its value as granted to Congress in Article 1 Section 8 Clause 5 of the constitution.If we continue down the yellow brick road of the Federal Reserve Act of 1913 and privately owned international central banking cartel:1.)We will destroy the economy  when we  reduce the national debt,  because the money supply is based on debt.2.) There will  be an endless boom bust cycle because when the banks issue loans, they create money in the equivalent of the principal of the loan, but do not create the money required to pay the interest on the loan, leaving a shortfall in the money supply of the interest payments required.3.) We will go deeper into debt or destroy the economy because the only central bank solutions are  to issue more debt or destroy the economy.If Congress were to resume its responsibility as stipulated in Article 1 Section 8 Clause 5 of the constitution and coin money and regulate its value debt free, and if other nations would do the same:1,) The budget would automatically balance.2.) There would be no need for income taxes, estate taxes, capital gains taxes, and corporate taxes.3.) There would be no need to reduce spending.The rise of cryptocurrencies has litigated and won the case before the world, precisely how easy it is to get rid of the central banks! I prefer cash, which would not use the gold standard because history has proven that every time that it has been implemented,  most of it ends up in the hands of a few wealthy families, and it and they destroy the nation!During the middle ages in England, King Henry 1st implemented the tally system and the bankers and goldsmiths did not control the economy, the average man provided everything necessary for his family by working 16 weeks a year! The rest of the time was spent learning, traveling,  on the arts, and volunteering for the church! For more on this topic please read The Web of Debt and the Shocking Truth About Our Money System And How We Can Break Free by Ellen Hodgson Brown J.D.It's great news that Fed govs. are just walking away! Waiting for the rest to do the same! You have been defeated. 

Conscious Reviver Wed, 09/20/2017 - 01:12 Permalink

Here's my prediction of what will evolve at the FOMC meeting.Janet and her dance team will do a crazy little dance to try to keep the show running until the next FOMC fetish event. That is all.

Manipuflation Wed, 09/20/2017 - 02:12 Permalink

Yellen will announce that all current 30 year T's will be pegged at 10%.  She will also unveil the new Merican 1000 year "Debt Doesn't Matter Miracle Bond" at 2017%.  Shorter term notes shall only be redeemable towards the purchase of the 1000 year note.

Last of the Mi… Wed, 09/20/2017 - 06:26 Permalink

$125 billion/month and these stooges stand before us with a straight face. Un-fucking-believable. QE will NEVER unwind, It's baked into asset prices now. Shit, everybody knows this and open laughs and derides the when they talk about "normalization" It's a complete sham and fraud and the ONLY people that have any confidence what so ever in the system are getting checks from the Fed related to their frigging QE program. The Fed is printing for the FEd and it's friends at this point, the rest of the world is along for the ride happily rearranging the deck chairs. It's just unbelievable to me.

Robert Trip Wed, 09/20/2017 - 06:45 Permalink

Hang on the Shylock's every word as they lie to you straight in the face and steal your treasure and the treasure of your children."Need a student loan and a credit card kiddies?Absolutely no problem. Just sign here."