Since the last FOMC statement (June 16th), there is one big loser – gold (although, as the chart shows, all of that loss was ‘engineered’ the day after The Fed). The dollar, bonds, and stocks are all higher with bonds best…
Source: Bloomberg
Over the same period, the market’s expectations for Fed action have surged hawkishly and tumbled dovishly most recently, leaving them basically unchanged since the last FOMC statement…
Source: Bloomberg
One thing of note is that the options market is pricing in significant event risk around the date of the Jackson Hole Economic Symposium as traders start betting on the chance Powell unveils the taper during that boondoggle…
So what will happen today?
The market in general expected nothing. Well, slightly less than nothing as consensus appears to suggest Powell punts off any discussion of tapering to September amid “delta” fears (although Goldman suggested Powell may bring the timeline forward).
So what did they say?
The Fed started by admitting hawkishly that they had made progress towards goals laid out to taper (of “substantial further progress”), and enacted a permanent backstop for money markets (with a permanent domestic and foreign repo facility).
Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals.
Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings
They did given themselves an excuse to wait:
“The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered “
On inflation, still transitory:
“Inflation has risen, largely reflecting transitory factors.”
Notably, with regard to the “delta” variant, the statement sounded a bit hawkish because it didn’t highlight the resurgence of the delta variant. It said:
“The path of the economy continues to depend on the course of the virus.”
In comparison, the June statement read:
“The path of the economy will depend significantly on the course of the virus.”
The Fed also removed this line entirely…
“Progress on vaccinations has reduced the spread of COVID-19 in the United States”
Sounds a lot like Powell and his pals are making room to discuss the delta variant as the spread re-accelerates.
Now we hold our breaths to see if Powell can get through the next hour without admitting The Fed is in an inescapable box of their own making.
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Full redline below:
