Powell Pops His Cherry: Raises By 25bps, Signals 2 More Hikes In 2018 But Raises Rate Trajectory For 2019

Stocks and bond yields are higher ahead of today's historic first-non-economist-run FOMC meeting as anxious eyes were focused on how hawkish or dovish Powell's fully-priced-in rate-hike would be.

Headlines:

  • *FED RAISES RATES QUARTER POINT, SIGNALS TWO MORE HIKES IN 2018
  • *FED ESTIMATES SHOW STEEPER PATH FOR RATE INCREASES IN 2019-20
  • *FED SAYS `ECONOMIC OUTLOOK HAS STRENGTHENED IN RECENT MONTHS'

The Fed's language seemed to downgrade the economic outlook...

"economic activity has been rising at a moderate rate"

They replaced "solid rate" with "moderate rate"

And they shifted from "Gains in employment, household spending, and business fixed investment have been solid," to "Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings."

The Key Issues heading in were as follows...

  • Will there be 3 or 4 hikes for 2018 and whether 2019 will shift to a more hawkish 3 (all derived from the dot plot)?
  • Will economic projections be upgraded? (Likely mostly GDP and the unemployment rate, not inflation.)
  • Does The Fed hint at faster pace of tightening in outer years? (or are we already near the terminal rate)

And the answers...

  • Fed will hike 3 times in 2018 - as most had expected - but raises number of hikes in 2019 to 3 from 2.

The reason for that is while 4 FOMC members were needed to raises their the median dot, only three did so, and there were 13 of 15 fed dots at 3 or more 2018 hikes vs 10 of 16 in dec.

Still, it is worth noting that while the dot plot still shows a median for 3 rate hikes this year, more (7/15) officials now favor 4 or more hikes this year. And dots become much more dispersed through 2020 than before (see below).

Meanwhile, the Fed sees an economy that strengthens in 2018 and beyond when it comes to GDP and unemployment...

  • Median 2018 gdp growth est. rises to 2.7% vs 2.5% dec. est.
  • Median unemployment at 3.8% in 4q 2018 vs 3.9% dec. est.

... But, dovishly, the Fed kept its median core pce inflation unchanged at 1.9% for 2018

Here are the economic projections:

3 hikes (total including today) for 2018...2018 2.125% (range 1.625% to 2.625%); prior 2.125%

  • 3 hikes for 2019 (up from 2) - 2019 2.875% (range 1.625% to 3.875%); prior 2.688%

  • 2 hikes for 2020 (up from 1) - 2020 3.375% (range 1.625% to 4.875%); prior 3.063%

  • Longer Run 2.875% (range 2.250% to 3.500%); prior 2.75%

 

Comparing the December to March dots shows that someone went hog wild with their 2020 dot projections:

With regard the economic projections, Bloomberg reminds readers that when Fed officials last published forecasts, after their December meeting, they still didn't have the full details on the contours of the tax legislation that would be passed later in the month. They also didn't know about the bigger-than-expected spending package that came in February.

* * *

Commenting on the statement, Renaissance Macro's Neil Dutta notes that the Fed came out largely neutral, which is "not really hawkish"

"next year, the median FOMC official sees a slight overshoot on inflation (+0.1ppt) another 0.3ppt drop in the unemployment rate and just one more rate hike. That's somewhat less than you'd expect in a standard Taylor Rule type model. That is not really hawkish, in my view. Buy stocks. Buy front end."

*  *  *

Bear in mind that expectations for Q1 GDP have been tumbling...

 

There remains a hawkish tilt to The Fed (if historical tendencies are to be believed)...

 

And notably, Bloomberg reports that most economists believe the risks are rising for higher-than-expected growth and inflation. About three-fourths of respondents said those risks now pointed to the upside, up from 63 percent in December.

*  *  *

Since The Fed last hiked rates in December, financial conditions are actually tighter (thanks to February's chaos). This is the first post-rate-hike tightening in financial conditions since The Fed started hiking in Dec 2015...

 

And as financial conditions tightened, gold has been the leading asset-class (as the dollar sank)...

Since The Fed hiked rates 30Y Yields are up 35bps and the rest of the curve is up 55-60bps as the yield curve has flattened dramatically...

 

And shifting to The Fed's so-called normalization of its balance sheet... it seems like it keep adding to the balance sheet when stocks drop?

 

Ahead of the statement, the market is pricing in 3.1 rate-hikes in 2018...

 

In fact, the probability of 4 rate-hikes this year has surged in the last week to 33.5% - its highest yet...

 

Finally we note, as UBS 'warns'...

"For the first time since the US Fed's independence, the rate setting committee will be presided over by someone who is not an economist - but a lawyer.

In 1923, the German Reichsbank was presided over by someone who was not an economist - but a lawyer"

Full statement redline below:

On to the press conference...

Comments

ejmoosa VAL THOR Wed, 03/21/2018 - 14:22 Permalink

1)  Rate hikes lead to higher interest payments on debt by leveraged businesses.

2)  A .  Businesses raise prices to maintain profit margins and pay the higher interest.

     B.   Businesses issue stock to pay off debt, diluting earnings per share, and increasing their P/E ratios.

3)  Inflation rises across the board.

4) Fed raises rates

5) Go back to step 1.

In reply to by VAL THOR

Hubbs Wed, 03/21/2018 - 14:11 Permalink

So you mean my Vanguard Money Market "Investments " which have languished for the past 10 years might start seeing some increased returns?

I'll believe it when I see it.

regular Wed, 03/21/2018 - 14:12 Permalink

The dollar lost more value today.

If you had money in digital coins, you doubled your cash,
whereas those holding the worthless triplesix hex paper get less as usual.

Back to work slaves (employees)

GoysRUs18 Wed, 03/21/2018 - 14:14 Permalink

Zerospam. Before you post one more obnoxious post. . I know who what you are . The fact you didnt like Joomanji? What cause he spoke the hard truth  you dont like? Everytime you post your crap im gonna post his. I knew it was only matter of time for him and will be for me to. Seen too many great posters who spoke here and someone didnt like the truth . So keeping in the spirit of Powell. Sorry sucka. He called it ! Sorry tylers but the guy/goy had me on the floor laughing.. Ya know like Longsoupline, Inthemix  etc 

 

WELCOME TO DAY ONE, FALL GOY! Sometimes I really wish I was wRONg, but I hardly ever am, which is why I save my posts.

 

Like this one!

 

 

Who will be the ashkenazi JEW OWNED FED'S "Fall Goy"?  10-26-17

For the first time in over 3 decades, a non-ashkenazi jew will be named as the new Federal Reserve Bank's Chairman. The ashkenazi jew owned FED needs a White, Christian, Heterosexual in charge when they pull the plug on the fairy-tale 'good economy' we are experiencing right now.
....a FALL GOY!

Not since Paul Volcker, the LAST NON-JEW FED CHAIR, over three decades ago, has any GOYIM been nominated.....
Recall how Paul Volcker said we need to LOOK INTO ENDING THE FED right before Reagan was shot....
Recall how JFK was exterminated by the ashkenazi JEW OWNED FED, right after he said he would end the FED...

https://www.google.com/search?q=JFK+END+THE+FED&ie=utf-8&oe=utf-8

Remember when the 96% ashkenazi jew run media ran the big story of THE CIA MAKING UP THE PHRASE "CONSPIRACY THEORIST" to attack anyone who questioned JFK's Death??...You don't????? Remember the declassified documents proving this? No? Why wouldn't the 96% ashkenazi jew run media report on that???
Are you gullible Goyim all still stumped?

https://www.google.com/search?q=cia+zerohedge+conspiracy+theorist&ie=ut…

Ever wonder why the ashkenazi jew run media says nothing about the ashkenazi jew owned FED printing themselves 8 trillion dollars under Obama? Ever even heard the ashkenazi jew media even mention

QUANTITATIVE EASING? Did they ever say Quantitative Easing
is ashkenazi jews printing themselves trillions? No?....Are you still too stupid to wonder why, or TO STILL not care?

https://www.google.com/search?q=quantitative+easing+jew+money+printing&…

GOT GOOGLE GOYIM?

11-6-17 ....'nazi JEW RATS FLEEING THE SINKING SHIP!!!
http://money.cnn.com/2017/11/06/news/economy/fed-leaders-retiring/index…

IT'S TOUGH BEING RIGHT ALL OF THE TIME!

RONSTRADAMUS

 

Blankfuck Wed, 03/21/2018 - 14:18 Permalink

Alert !

FED RESERVE FUCKERS WIN AGAIN! MARKET SPIKES AND BANKERS POCKETS ARE STUFFED WITH PONZI MONEY!

ITS A PONZI PROOF MARKET!

CONFIRMED, NO JAIL TERMS FOR THE BANKSTERS, JUST STUFF THOSE POCKETS AND BELLIES FULL OF FED FUCKER FUN!

MrBoompi Wed, 03/21/2018 - 14:19 Permalink

So the interest rate for personal savings accounts will increase by %.25 2 years from now?  It reminds me of gasoline pricing.  When the price of oil goes up, it seems to be reflected in the price by the end of the business day.  When the price goes down, maybe you'll see a drop sometime in the near future.  In the monopolistic sectors of the economy like banking and energy, the consumer tends to lose out in the pricing battles.  

REAL MONEY Wed, 03/21/2018 - 14:23 Permalink

How convenient to say the pace of rate hikes will increase in 2019 and 2020.  The $ won't even be around in its present form or we will be experiencing Hyperinflation then.  What a criminal organization