For those of you keeping score, this year the Fed has shocked markets pivoting from hawkish to dovish a dizzying number of times. Here's the rundown:
Hawkish, December
Dovish, March
Hawkish, May
Dovish, June
Investors are justifiably frazzled and have scrambled to keep up with all the flip-flopping. When Yellen went hawkish in May, during a speech at Harvard University, she remarked that investors should "probably" expect a rate hike in the coming months.
Taking the Fed chair at her word, investors thought there was a greater than 50% chance the Fed would hike rates in July (see below).
Today, markets think that possibility is essentially zero.
Click image to enlarge
What's happening here?
Well, the Fed revised its dot plot (which shows each participant's expectations for future rate hikes). Interestingly, six Fed officials now see just one rate hike in 2016 versus just one participant suggesting as much in March.
It was quite the about-face for most FOMC members. As we noted earlier this week, San Francisco Fed head John Williams was publically calling for up to five rate hikes at the outset of this year.
Then reality set in.
Here's what central planners have failed to fix:
- Economic Growth
- Earnings Recession
- Industrial Recession
- Past Peak Consumer Confidence
- Past Peak Non-Farm Payrolls
(To name a few...)
And yet, here's the lead in yesterday's FOMC statement:
"Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up."
That's simply not true which is why we'll reiterate once again...
