SPECIAL FOMC Preview: Inflation will be Higher for Longer
Or they can crash the economy. Take Your Pick
Today:
Fed Expectation Walkthrough
G.S FOMC Roundtable chartpack lays it out in 5 charts
more previews.. The ones we thought gave the best synopsis
Gold should do what stocks do today. Silver should do what stocks do today more. Dollar reaction will likely be linchpin for the west today.
Fed fireworks start at 2p.m. ET
1. Fed Expectation Walkthrough
The Fed is expected to hike its target Fed Funds range by another 75bps for November and there is talk of a “stepping down” on the severity of future rate hikes afterwards.
Focus:
The Press meeting in which people will be looking for clues on if the Fed will be slowing its pace of rate hikes over the next several meetings, and/or if they will be raising the the rate at which they will stop hiking (AKA Terminal Rate.)
Implications: If the Fed implies it will “step down” the increments at which they will hike going forward, it is EXPECTED they will raise the terminal rate and push out the timeline in which to implement the higher rate. Thus, slower and longer.
What is Likely
Wall street and the media are obsessed with black and white answers from an institution that operates in the gray. Therefore this scenario is to us most likely:
IF: Powell says 75 bps for November.
AND: Powell suggests they will “step down” the increments at which future hikes will be implemented
THEN: he will say the Terminal rate at which they will stop may (not necessarily) also be raised and even if it is not raised, they will be hiking for a longer time frame. They already raised in in their minds FWIW.
FINALLY: He will say something that effectively states he reserves the right to change his mind on both the size of each hike and the final rate at which he will stop hiking , if the data does not continue on its current path.
The market will react appropriately for the rest of the week
2. GS FOMC Roundtable Charts
Everything the Fed is doing now telegraphs the reality they cannot get inflation under control without crashing the economy. So they are stepping down the rate of hikes, and stepping up the length of time they will hike. Bottom line: Get used to living with inflation. Goldilocks ain’t coming back
Goldman Thinks the Step down in rate hikes will be aggressive…
Reason 1: They still don’t know how inflation will play out…
Reason 2: We are in the a new era of easy fiscal and tight monetary policy…
CONTINUES AT BOTTOM…
