Statement Recap (Neutral): The Fed skipped and did not raise rates. Slight changes in the statement. Yet in our view the need for “additional information” in order to hike actually suggests the bar is high for a July hike.
SEP Forecast Recap (Hawkish): The biggest surprise at today’s FOMC was the major upgrade to the interest rate forecasts (the dots) and to a lesser extent on the outlook for growth, inflation and the unemployment rate.
Presser Recap (Neutral): Started off hawkish but as Powell got into the Q&A the tone quickly shifted towards more of a neutral/dovish stance. If they wanted to deliver a hawkish skip, it was quickly dashed and became a flop.
Market Implications: The Fed runs the risk of solving one policy error (too easy for too long) with another policy error (as they ignore the growing credit contraction and persistent losses from higher rates). The catch-22 is that for them to ease something now has to break or the economy has to crack. The longer it takes for either an accident to happen and/or a recession, the longer they are on hold. This does not bode well for risk assets, especially given the momentum of the last few weeks. It’s called range trading, we are at a near-term top for risk. The only real saving grace for risk is CPI is likely heading lower and the hurdle for the Fed to hike in July will be a high bar.