Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

FOMC Recap: Hawkish Dot Plot Flummoxes Fedwatchers

By Matthew WellerMarket OverviewJun 17, 2021 12:25AM ET
www.investing.com/analysis/fomc-recap-hawkish-dot-plot-flummoxes-fedwatchers-200586607
FOMC Recap: Hawkish Dot Plot Flummoxes Fedwatchers
By Matthew Weller   |  Jun 17, 2021 12:25AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

As we noted in our FOMC Preview report, there was never really any question that the Fed would leave monetary policy unchanged at yesterday's meeting, so traders quickly skimmed past the steady 0.00%-0.25% interest rate and ongoing asset purchases to the more impactful aspects of the release:

1) Monetary policy statement

In terms of the official monetary policy statement, there was little in the way of market-moving updates. The only tweak was that the central bank acknowledged that “progress on vaccinations has reduced the spread of COVID-19…but risks to the economic outlook remain.” On balance though, this was merely an acknowledgement of publicly-available information, and the lack of hints about tapering asset purchases any time soon removed one potential hawkish surprise.

2) Summary of Economic Projections

For those who dug into the Fed’s Summary of Economic Projections (SEP) however, there was a pretty big hawkish surprise: The median FOMC policymaker now expects two interest rate hikes by the end of 2023, up from zero in the last meeting. Perhaps even more significantly, 7 (of the 17) policymakers now expect at least one interest rate increase by the end of next year.

At the margin, the central bank’s other economic projections support this hawkish shift. The median Fed member revised down their projections for the 2022 unemployment rate (to 3.8%), while simultaneously revising up their projections for 2021 and 2023 growth (to 7.0% and 2.4% respectively), as well as 2021 and 2022 core inflation (to 3.0% and 2.1% respectively). In other words, the Fed believes the US economy will more quickly approach its dual mandate of inflation averaging 2% and maximum sustainable employment, so Jerome Powell and Company expect to normalize policy more quickly than before.

Rate Hike Expectations
Rate Hike Expectations

3) Chairman Powell’s press conference

As usual, it fell on Chairman Powell to “talk down” the market’s initial reaction to the interest rate forecasts. And while he did his usual shtick about the projections “not reflecting a committee decision or plan,” he also repeatedly emphasized the potential for ongoing strength in the labor market.

Highlights from Powell’s speech (as of writing at 3:00ET Wednesday):

  • REACHING STANDARD OF FURTHER PROGRESS `STILL A WAYS OFF'
  • PROJECTIONS DO NOT REPRESENT A COMMITTEE DECISION
  • POWELL: DOTS TO BE TAKEN `WITH A BIG GRAIN OF SALT'
  • INFLATION HAS INCREASED NOTABLY IN RECENT MONTHS
  • BOTTLENECKS MAY AFFECT SUPPLY, AND THEREFORE INFLATION
  • MAY SAY MORE ON TAPER TIMING AS WE SEE MORE DATA

Market reaction

The early market reaction yesterday showed that traders were caught off-guard by the hawkish shift in the Fed’s interest rate projections, with major stock indices selling off, the US dollar catching a bid, and gold shedding a quick 25 points. As we went to press, Chairman Powell’s press conference was doing little to dissuade the market of its initial hawkish interpretation of the statement and economic projections.

Perhaps the most interesting move took place in the bond market, where yields on the 2-year Treasury bond ticked up 4bps to 0.20% while the yield on the benchmark 10-year Treasury bond surged over 10bps to 1.58%. With the world’s so-called “smartest market” expecting a quicker and more aggressive liftoff in interest rates, the fallout from this Fed meeting could continue to drive all markets in the days and weeks to come.

Original Post

FOMC Recap: Hawkish Dot Plot Flummoxes Fedwatchers
 

Related Articles

FOMC Recap: Hawkish Dot Plot Flummoxes Fedwatchers

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Chris Poulos
Chris Poulos Jun 17, 2021 1:49AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
im hard pressed to refer to .20% as a yield. no wonder everybody is putting their money into stocks.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email