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Wednesday, March 19

19th Mar - Special: FOMC

"Vast majority expect another taper of USD 10bln this month, taking monthly bond buys down to USD 55bln per month. Markets may look for indications of how the committee will adjust its forward guidance with regard to a hike of the federal funds rate."

18:00 GMT: Decisions, Economic projections
18:30 GMT: Press conference

March Statement – FED
January Statement – FED
March Economic Projections – FED
December Economic Projections – FED

Fed Statement Change Tracker – WSJ
Press Conference, live feed – Ustream
Press Conference, live feed C-Span

Live commentary – The Financial Times
Live commentary – The Wall Street Journal

EURUSD, with Fed- and ECB meetings. Note that Fed-days often mark the peak, while ECB-days the bottom.

Same chart, zoomed in a bit.


Parsing the Fed: How the Statement ChangedWSJ

Janet Yellen’s first FOMC statement, annotatedFelix Salmon / Reuters

Analysts React: ‘You Have to Read This Statement as Risk Off’WSJ
FOMC Projections and Press ConferenceCalculated Risk
Live Blog: Janet Yellen’s Press Conference and Fed DecisionWSJ

Yellen's Fed Tightens ($10bn Taper) And Loosens (Lower For Even Longer); Blames Weather - Full Statement RedlineZH

Fed Lowers GDP Forecast, "Dots" Indicate 13 Participants See First Firming In 2015, Up From 12 In DecemberZH

Stocks And Bonds Disagree With "Reportedly Dovish" Statement, Dollar SpikesZH

Fed Tweaks Rate Guidance, Affirms Easy-Money TiltWSJ
Bond-Buying Program Cut by Another $10 Billion

Goldman's FOMC Statement Post-MortemZH
Economic Projections (SEP) indicated a more hawkish path of the policy rate than that seen in the December SEP. The statement included a move toward qualitative guidance, but was roughly neutral on net in our view.

Majority of Fed Officials Still Expect First Interest-Rate Hike in 2015WSJ

Janet Yellen's Full Press Conference TranscriptZH

Jon Hilsenrath’s Takeaways From the Fed Statement and Economic ProjectionsWSJ

Fed Dropping Numbers-Based Guidance Ends Policy-Making ExperimentWSJ

Yellen Suggests Roughly 6 Month Gap Before Rate Increases After QE EndsWSJ

The Fed and Return to Ad HoceryMarc to Market

Recap: Too Much TransparencyGlobal Macro Trading

The Fed surprises and revises up the rate path by 50bp by the end of 2016Danske Bank
Fed Changes Threshold Language; Stocks DipWSJ

What does Yellen's "around six months" mean?Calculated Risk
Federal Reserve lays groundwork for first interest rate hikeWaPo
Jon Hilsenrath’s Takeaways From the Fed Statement and Economic ProjectionsWSJ

Market In Shock By Yellen's First FOMC AppearanceZH

Fed’s Isolationism Means Calm Markets Mask Deeper Global ProblemsWSJ

Fed may raise rates as soon as next springReuters
The Federal Reserve will probably end its massive bond-buying program this coming fall, and could start to raise interest rates around six months later.

Fed Links Rate to Range of Data, to Keep Policy EasyBB
The Federal Reserve gave itself room to keep borrowing costs low at least until next year by dropping a linkage between the benchmark interest rate and a specific level of unemployment.

Slightly hawkish Fed sets late 2015 as rate hikes time frameTradingFloor
While everything went almost as expected, markets interpreted Janet Yellen's first FOMC presser as somewhat hawkish. The reason was a few dots suggesting rate hikes earlier than many had expected - and bonds and stocks plummeted and USD gained.

Hawkish Fed catches market by surprise as USD goes on rampageTradingFloor
It’s hard to characterize yesterday’s FOMC statement and Yellen's press conference as “hawkish”, but the bar was extremely low and easily cleared. The response in asset markets is the key to trade selection among the USD pairs.

Tightening Starts When?Aleph Blog
This is the first time since the Fed started giving enhanced guidance that the time for tightening actually moved backwards (closer to the present).

US monetary policy moving in the right direction Sober Look
The current environment has created such hunger for yield that investors are increasingly taking higher risk in order to target the same performance…The Fed's exit should help adjust some of the distortions.

Unintentionally HawkishTim Duy’s Fed Watch
If you focus on the "low rates for a long time" language, you walk away with dovish interpretation.  If you focus on the implications of the end of the Evans rule on the Fed's inflation target, I think you can walk away with a hawkish interpretation.  Moreover, if you believe that 2% is now a ceiling, you probably should think the risk of inflation triggering a Fed response is higher than under the Evans rule, and adjust your forecast accordingly.

The 16 "Dots" That Sent Stocks ReelingZH
Thoughts from SocGen on this latest example of just how clueless the Fed is when it comes to the signals it sends about the future.

FOMC Economic OutlookBespoke

Geopolitical uncertainty clouds view on Fed outlook: CNBC surveyCNBC
All but one of the 41 respondents, who include economists, fund managers, and strategists, see the Fed tapering at the meeting this week, and 81 percent expect tapering at each of the remaining meetings this year.

FOMC preview: More tapering... and changes to guidanceTradingFloor
Tonight the FOMC is expected to announce further tapering of the third round of its quantitative easing programme and changes to its unemployment threshold. Weakness in the economy will be mainly explained by poor weather.

3 Numbers To Watch: BoE Minutes, UK jobs, FOMCTradingFloor
It’ll be interesting to see if the Fed changes its assumptions on GDP and the other key indicators (unemployment and inflation) in today’s release now that the bank has said that it's committed to winding down its bond-buying programme.

That Train Left the StationTim Duy’s Fed Watch
I was re-reading some of the recent overshooting debate and it occurred to me that it is comical that we are even having this discussion.  The Fed is not going to deliberately overshoot inflation, period.  That train left the station long ago. So long ago that you can't even here the rumble on the tracks.

What to Watch From the Fed WednesdayWSJ
Statement, Forecasts, Press Conference

FOMC and MoreMarc to Market
The new chair will have a press conference in which she explain the evolution of forward guidance, away from the quantitative threshold approach toward what has been called a qualitative approach.  This has largely been telegraphed already in other Fed official speeches.  The point of all this is to help reassure (both domestic and foreign) stakeholders that it does not intend on raising rates for some time. The collective judgement of the market is that "some time" is more than a year off.   Yellen's success might be measured by how little these expectations change.

FOMC preview: Fed still confident in US outlookDanske Bank
Language will have to be softened and instead the FOMC is expected to acknowledge the softer data in early 2014. However, at the same time, we look for the FOMC to state that the softness is seen as temporary and mostly due to adverse weather conditions. When it comes to Fed communication, once the 6.5% unemployment threshold is crossed signals have been clear that the Fed will go back to more qualitative language and not put new numbers on the table.

Wall Street May Be Expecting A Little Too Much From The FedBI
Beyond "tapering," the next big question is what the Committee will decide with regard to its forward guidance on the likely future path of short-term interest rates.

From QE To Qualitative Guidance: What To Expect From The Fed TodayZH
Goldman Sachs: Some accommodative changes expected from the FOMC later today
SocGen: qualitative guidance and inflation concerns in 2015
BofAML: similar, "escape velocity" recovery expected in late-2015...

Yellen and the Fed, a WSJ BriefingWSJ
Free downloadable e-book!

Fed Shouldn’t Use Rates to Target Bubbles, Paper SaysWSJ
Fed officials have started warming up to the notion that they might one day need to raise interest rates to prevent dangerous asset bubbles from inflating too much. A new paper has a simple warning: Don’t do it.

The time for tightening by the US Federal Reserve could be nighFT

Grand Central: Handicapping the Fed’s Quarterly Economic ForecastsWSJ

FOMC Meeting BeginsTim Duy’s Fed Watch
The Fed will continue with tapering by cutting another $10 billion from asset purchases.  They will most likely alter the guidance but continue to signal an extended period of low interest rates.  Low rates might simply be part of the "new normal" the economy is settling into, a new normal that the Fed may be unintentionally reinforcing. 

What to Watch From the Fed WednesdayWSJ
Yellen will likely face questions on the continued reduction in bond purchases and the recent deterioration in economic conditions.

Yellen Chairs First Meeting as Guidance in FocusBB
The first Federal Reserve monetary policy meeting chaired by Janet Yellen will reduce the Fed’s monthly pace of asset purchases by another $10 billion, economists project.

Overshooting, once and for allFT

Fedspeak Cheatsheet: What Are Fed Policymakers SayingWSJ

FOMC Preview: More Tapering, Change to GuidanceCalculated Risk
Fed Chair Janet Yellen will chair her first FOMC meeting this week on Tuesday and Wednesday, and hold her first post-FOMC press conference following the meeting. It appears the FOMC will reduce monthly asset purchases by another $10 billion per month, from $65 billion to $55 billion. The weaker than expected recent data will probably not derail another round of tapering, and the focus this month will be on the change to the forward guidance.

Weighing the Week Ahead: Yellen Takes the StageA Dash of Insight
This week marks the first FOMC meeting with Janet Yellen as the Chair. Since there will also be an update to forecasts, the announcement will include a press conference.

On That Hawkish Wage TalkTim Duy’s Fed Watch
It is reasonable to expect that evidence that slack is dissapating more quickly than expected will trigger a fresh assessment among policy makers regarding the appropriate policy path. Next week is probably too soon; later meetings are more likely.  Given that wages already appear to be on the rise - a key sign of tightening labor markets - that change could happen quickly.  This is not a call for higher rates; it is a warning that higher rates might be coming.

Jobs and UnemploymentEPI
Nowhere CloseThe Long March from Here to Full Employment

A few points on slackThe Economist
Things are mostly moving in the right direction, but across several key variables that improvement has merely pushed the labour market back to where it was in the depths of the last two recessions. The Fed's latest projections show the economy reaching full employment in 2016.

Known unknowns about labour market slackFT
In our opinion, the stronger hawkish argument right now is about financial instability. We don’t actually agree this argument either.

Overshooting and the FedFT
People are confusing two separate questions in the recent debate about wage rises and spare capacity in the US economy: first, the amount of slack left in the labour market, and second, whether the Fed should deliberately try to overshoot its inflation objective of 2 per cent.

What is the Fed's Real Inflation Target?Macro Musings
Even two years out the FOMC is predicting inflation no higher than 2%. Since the FOMC has some influence on inflation this far out, this forecast reflects beliefs about current and expected Fed policy. It suggests that the FOMC is not taking an symmetric approach to its 2% inflation target. Instead, the FOMC is aiming to error on the side below 2%, at least in its forecasts.

Unemployment, Wages, Inflation, and Fed PolicyTim Duy’s Fed Watch
If the Fed follows historical behavior, they will begin tightening before wages rise and in an environment of low inflation such that inflation remains stable even as unemployment falls.  In other words, in recent history that have not exhibited a tendency to overshoot.  Explicit overshooting would represent a very significant shift in the Fed's modus operandi.

The market does not expect overshootingThe Economist
Futures markets anticipate the first rate hike in the fall of 2015. Rate are then set to rise about one percentage point per year. This locks in a solid amount of “overshoot” already.

In search of agreement on slack and the FedFT
Three big questions: how many labour force dropouts would return in a strengthening economy; whether the long-term unemployed now represent structural unemployment; and whether the high share of part-time workers represents a kind of slack despite technically being counted as employed (if their employers increase their hours back to full-time before hiring new workers).