This week’s policy speakers
The FOMC hiked rates by 25bps to a range of 2.0-2.25%, as expected. The Committee
signaled little change in the path of policy, showing four hikes this year, three hikes next year and one in 2020. The new 2021 dot showed no change in the fed funds rate
relative to 2020, but the long-run dot did shift up to 3.0%. At the post-meeting press
conference, Fed Chair Powell sounded upbeat on the medium-term growth prospect,
noting that growth is “running at a healthy clip” and the “unemployment rate is low”
while “inflation is low and stable.” He did note that rising trade tensions were a concern for the Committee but that it is unlikely to alter the path of policy in the near term given that there hasn’t been any negative impact to materialize in the data.
He fielded questions on the removal of the language around the accommodative nature of policy. He reassured markets that the deletion of the sentence did not indicate any change in the gradual path of policy but rather it was to avoid giving a false sense of certainty on the level of the “neutral rate”. Also, Chair Powell later on noted that he believes that policy remains accommodative as rates remained below the longer run dots. Last, Chair Powell was asked about the possibility of another technical adjustment to IOER. He downplayed the latest moves in the effective fed funds rate to the greater treasury supply and its impact on repo rates, though he did suggest that the Fed would be open to another technical adjustment which we think is likely in December. Bottom line is that this week’s fedspeak leaves us comfortable with our call for the Fed to raise rates once more this year and three more times next year. Looking ahead, the fedspeak schedule is packed, with Fed Chair Powell speaking on Tuesday and Wednesday and a slew of fed official speaking throughout the week.
Read a great post on Dot Plot Tasseography from The Heisenberg Report
-R.W.N II, yours is 322.