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☀ FOMC Day - Connecting the dots

Markets in a holding pattern ahead of the main event tonight...

Today is the first proper test of the new framework...

And this survey from Roberto Parli suggests that markets don't believe in it just yet...

  • 77% of respondents expect the first rate hike before the end of 2023

  • 35% expect it to come before the end of 2022...!

Although there's some serious inconsistency here...

 4/5 Respondents seem to have internalized the #Fed's guidance on QE a lot better. Median answer is that QE will not be tapered until 2022Q1 and that it will end beyond 2022. This scenario, which is very plausible, would rule out 2022 hikes (no hikes while QE is ongoing). pic.twitter.com/8bhmY0IrLp— Roberto Perli (@R_Perli) March 16, 2021 

84.7% expect QE to end in Q4 2022 or later, but 35% expect the Fed to start hiking rates before then?

Makes perfect sense to hike while QE is ongoing... 🙄

Either way 2023 is the 'battleground' - whichever way you slice it, the market is definitively pricing hikes in 2023...

December's dot plot showed 5 of 17 members expecting liftoff during 2023...

We've added one more dot with Waller's appointment...

All of which means we need to see 9/10 of the 18 dots moving up that 2023 line to shift the median dot plot.

I'd be amazed if that happens.

It would undermine the entire credibility of the outcome based FAIT framework.

The dots are a form of forward guidance - and we haven't even seen inflation print above 2% since the new framework was introduced yet...

Are these the comments of Fed officials who believe inflation will stick? 👇

PiQ

Base effects, transient, subdued, not this year...

"So... we should rush to hike rates then?" 

Yesterday's headlines:

 three headlines from today:

- Bridgewater Co-CIO Sees Inflation Spiral Forcing Fed Into Action

- Guggenheim Says It’s Time for Inflation Fear ‘Reality Check’

- Bill Gross Says He’s Short Treasuries, Expecting 3%-4% Inflation

anyone else have a take?— Katie Greifeld (@kgreifeld) March 16, 2021 

How about those rising bond yields...?

PiQ

Sounds like they're absolutely bricking it 🤪

Prediction time

  • A couple more dots at most in the 2023 column

  • Powell to reinforce the FAIT in the presser, mention that if financial conditions tighten excessively then they are ready to act...

  • Everyone to wonder what all the fuss was about afterwards

Full Preview ICYMI

And here's a link for the presser:

 Tomorrow at 2:30 p.m. ET: Chair Powell hosts live #FOMC press conference: https://t.co/hc7X13Drh9 pic.twitter.com/PerEmGUbsi— Federal Reserve (@federalreserve) March 16, 2021