Tl;dr: The Fed removed a portion of the statement that said inflation has made progress toward the central bank’s 2% goal.
That aligns with the more cautious tone officials have been taking on the inflation outlook.
Rate-cut expectations for 2025 are sliding lower (hawkish)...
"The Fed’s statement was somewhat hawkish relative to last month, so it isn’t surprising that the knee-jerk reaction was for some modest bear flattening,” Bloomberg Intelligence US interest rate strategists Ira Jersey and Will Hoffman say.
“As we also noted, the press conference may cause even more volatility than these modest shifts in the statement.”
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Since the last FOMC meeting, on December 18th, The White House has changed hands with oil & gold outperforming as bond yields soar (prices drop)...
Source: Bloomberg
US macro surprise data is basically unchanged - soft and hard - since the last FOMC, but not before dropping before and recovering after Trump's inauguration...
Source: Bloomberg
But, digging into the details, we see a rather notable rise in growth data surprises and downside inflation surprises...
Source: Bloomberg
The market has fully priced-in ZERO rate cuts today so there should be little to no surprise at all, and the market has recently shifted (dovishly) up to match The Fed's dot-plot expectations of 2 x 25bp cuts this year......
Source: Bloomberg
...with the only potential shift being from Powell's press conference leaving this as we noted previously, the "least anticipated Fed meeting in recent history."
The Fed held rates flat (no cut) as expected:
But offered some more hawkish shifts:
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*FED: UNEMPLOYMENT 'STABILIZED,' LABOR MARKET REMAINS 'SOLID'
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*FED REMOVES REFERENCE TO INFLATION MAKING PROGRESS TOWARD GOAL
That last point is by far the most noteworthy from the statement.
A strong labor market and no progress on inflation is not the recipe for rate-cuts any time soon.
Now, we all look for any hawkish or dovish tells from Powell during the press conference.
Read the full redlined statement below:
