Fed hawkish surprise and communication revamp (with Christina Ruffini; Emily Graffeo)

Yelena Shulyatyeva notes the FOMC statement was shorter and simpler, as expected, but the dot plot was unexpectedly hawkish (9 of 18 members see hikes). She views the removal of forward guidance and creation of task forces as a long-overdue communication review, not a loss of control. She believes the Fed will remain data-dependent, with inflation viewed as a supply shock, and that the current economic calm is a good time for such reviews.

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The Conference Board 4.8
Policy Institute
Yelena Shulyatyeva 7.5

Fed hawkish surprise and communication revamp (with Christina Ruffini; Emily Graffeo)

ndx

The guest noted stocks were down (S&P 500 -1%) as a reaction to the hawkish message, implying a negative short-term outlook for equities.

yields

The guest noted the two-year yield spiked 16 bps and the dot plot was unexpectedly hawkish, implying upward pressure on short-term yields.

Christina Ruffini

The FOMC statement was shorter and simpler, removing forward guidance. A task force on communication was announced.
Yelena Shulyatyeva

The shorter statement and removal of forward guidance were expected, but the hawkish dot plot (9 of 18 members projecting hikes) was a surprise. The Fed is recommitting to its inflation mandate.
Christina Ruffini

Warsh omitted his dot, saying forecasts aren't helpful now. Does he have a point?
Yelena Shulyatyeva

The dot plot has always been controversial. A task force to review communication is a good idea. Warsh's comment on press conferences suggests they may become less frequent.
Emily Graffeo

Will task forces create more consensus or more cacophony?
Yelena Shulyatyeva

Diverse opinions are a good thing. I am concerned about limiting how much FOMC members can express their views. Transparency was a key achievement.
Christina Ruffini

Do task forces give Warsh political cover?
Yelena Shulyatyeva

It's a good time to review things because the economy is giving us a 'good gift'—no need to move rates now.
Emily Graffeo

Does the Fed view inflation as temporary?
Yelena Shulyatyeva

The use of 'supply shock' language in the statement suggests they see it as temporary. They reaffirmed the dual mandate. The data will tell us if it's temporary or not.
Christina Ruffini

Will it be harder for Warsh to hold consensus at the next meeting when the split becomes visible?
Yelena Shulyatyeva

Consensus-building in the first meeting was good to see, but we could see dissents going forward. I would not be surprised.

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