Watch Live: Fed Chair Powell Walk The 'Asymmetric' Tight-Rope At Today’s Presser?

As expected, no change in rates from The Fed, and a Hawkish bias to the language changes in the FOMC statement.

The bigger than expected QT taper news is noted and Powell will gotta explain why they are 'easing' this policy more than expected while inflation claims 'out of control'... and they are not ready to cut rates.

So now it’s down to Powell to avoid a faux pas (as we specified below) over shifts in The Fed’s 'asymmetry’ consequence function.

Watch Powell walk that Tightrope live here (due to start at 1430ET):

* * Oh, * *

As we detailed earlier, today’s Fed gathering had the marketplace feeling (and positioned for) “HAWKISHNESS,” especially after the ECI pile-on yesterday, which didn’t simply “upside surprise,” but re-accelerated to 1.2% after ending 2023 at 0.9%, and showing that persistent weight pressures further add to the risk of keeping inflation “too elevated” for the Fed.

However, according to Nomura MD Charlie McElligott, the largest hazard with the Fed present is that there will be no summary of economical projections / no dot plots...

...meaning that outside of the usual statement, It will be Powell’s press conference alone that dictates marketplace behavior... and the backtest on that is simply a bit dicey, with any historical faux pas in-sample.

He’s gotta find a way to “keep it in the pocket,” where his language simply must message “balance of scratches”...

...which means (as we specified earlier) that he dangerfully must “toe the line” on seeing out the Fed way distant from presently asymmetric “when cut?”-messaging dating back to Dec ’23...

...and alternatively back to a two-way distribution with both ‘cut’ and received-to-God ‘hike’ –optionality.

Nomura’s rates guru Jonathan Cohn details just how Narrow a way it is for Powell:

Powell’s FOMC presser and, in partial, his answer to the inevitable question around possible hikes presents a key risk.

Following meansful policy way repricing since CPI and reorientation of Fedspeak, the bar for Powell to excelled marketplace hawkishness is high.

Powell, pricing, positioning

What to Expect

Statement:

Our economists anticipate 2 Hawkish changes (see their preview here)

1. Change “inflation has passed over the past year, but restores elevated” to “inflation remains elevated”

2. Removal of “greater” in the Fed’s Expectation that it would not be easier rates “until it has large assurance that inflation is moving sustainably toward 2%”

Presser:

• Powell’s FOMC presser will again be highly scrutinized, partially his answer on whether hikes are in play. Bostic and Bowman flagged hikes as a hazard and Williams did not regulation them out, inviting a consequence of two-way risk. thought Powell will likely keep that policy is revived, he will besides likely want to hold optionality amid advanced unprecedented around neutral. The dating of that optionality sentiment will be critical.

Is the marketplace ready / priced?

• How much is priced: The marketplace has charged a flight, going from 63bp of cuts in 2024 pre-CPI to 28bp currently. Market-implied year-end rates for 2024 and 2025 are well above the median dots, granted the March dot game had any ‘customs’ medians. The repricing oats primary to sticky inflation asserting advancement through H2 last year, though there is besides clear ben a reduced ‘recession’ premium as well. In terms of hike application, the market-implied probability of a hike by year-end is now around 15%, double what it was pre-CPI. Given the reorientation of Fedspeak amid this sticky inflation (i.e., little emphasis on cuts this year), there is simply a higher bar for Powell to enhanced marketplace hawkishness.

• Relocation: At the front-end, there have been a couple waves of waves in ‘sell hike’ trades like 1×2 payer spreads in the sell-off. An exhibition of open interest changes coupled with insights from our futures desk suggestions a good deal of positioning post-CPI was rolled into lower strikes, not simply taken off. And with the increase in put OI in 94.625 (no cut) strike mostly a function of buyers, these combining with sales in lower stripes (short stroke) seem prepared for something like no cut or 1 hike scriptio. Of course, the hazard is that if Powell rhetoric around possible hikes is seen as Hawkish and followed by strong NFP and CPI, we decision rapidly toward the low strikes as the marketplace prices in a higher reliability of multiple hikes and we get another positioning flush. And to think that if the Fed feels the request to change its directional bias and hike (not just stay on hold), they gotta price in a advanced probability of multiple hikes, not a 1 and done. However, I inactive think there's a very advanced bar for the Fed to pay more than lip service to open-mindness.

QT slowdown

• The Fed is expected to announce a simplification in the package of QT, likely to $30bn per period for UST. I wouldn’t anticipate much guidance on an end date. Slowing runoff should theoretically let for a longer period of QT and lower eventual level of reserves (thanks to more time for an effective redistribution of liquidity) – a level around which uncertainty bands are very large.

Putting it together suggestions a ‘middle of the road’ Powell can give way to a temporal relief rally, while a blundered characterization of hike option could lead to another position flush out and bear-flattering of the young curve.

Hence, McElligott wars that with all this HAWKISH mentality / sentiment / positioning, the hazard is that any amazingly dovish FedEx or Data (e.g. NFP Friday), you CouLD see possible for an outsized SHORT compression / RALLY hazard on stops.