Higher for longer message (via the dots) the new form of tightening?
Statement Recap (Slightly Hawkish): Although the FOMC did not hike (this was the 2nd skip in the cycle) at its September meeting they have kept the door open to future hikes. Overall, the statement was made more upbeat via some minor tweaks in the language. The outlook for economic activity was characterized as expanding at a “solid” pace (instead of “moderate” as mentioned in the July meeting).
SEP Recap (Uber-Hawkish): While the median interest rate dot (5.625%) for 2023 was unchanged, the median dots for 2024 and 2025 were meaningfully revised upwardly (where they took out 50bps of cuts in 2024 – shifting the rate path higher). The new median dot for 2026 released this meeting came in at 2.875%. They also now have more optimistic growth path as well as a lower unemployment rate.
Presser Recap (Slightly Hawkish): In the post-meeting presser, Chair Powell's prepared remarks reiterated the FOMC's commitment to bringing inflation down to its 2% target. As we have mentioned before, once this message is changed the cycle is over. Chair Powell expressed the FOMC could still raise rates if appropriate, and at a minimum intends to hold rates restrictive until inflation moves lower.
Market impact and our views: Classic risk-off via DXY bid, US rates jumping higher (initially in the front-end but now felt across the curve), meanwhile all this tightening talk and “higher for longer” hit long duration stocks. Although the Fed was more hawkish than we expected, we were leaning in the same direction as our base was for a bear flattening of the curve (on the break) and for the risk-off to resume. Given what we learned at this meeting there is upside risk to our rate forecasts (but we too remain data dependent ahead).