I was today years old when I learned an FOMC dissenting vote could be against the statement, not just the rate decision. You will read headlines about four dissents, but don’t freak out - it’s not like some of them voted for hikes.
Miran voted for a rate cut (let it go already Stephen, Trump picked Kevin), but that doesn’t count because he has a tattoo that says “ZIRPMaxxing”.
Three other members, Lori Logan (Dallas), Neel Kashkari (Minneapolis), and Beth Hammack (Cleveland) all voted against the statement.
I literally didn’t know that was a thing. Turns out they’ve been doing that since 2000 and in 2014 there was a single dissent against the statement. I may need to find a new profession.
This can only be interpreted as a shot across the bow at Kevin Warsh:
Warsh landed the Chair by attacking the Fed, so these voters are no friend of his. They just sent him a message. And maybe this is exactly what he wants, because during his confirmation hearing he said he wanted “messy” meetings and a “family fight.” UofM Econ Professor pointed out just how fractious the FOMC is right now…even with flat rates, this could be bad for cap vol.
Not all dissents are created equal, though. Opposing a language that suggests the next move is a cut is not the same as a vote for higher rates.
The bar to a cut has been raised, but I’m not sure the bar to hike has been lowered. Here’s the language they are apparently taking a stance against: "attentive to the risks to both sides of its dual mandate.”
Powell - Will He Stay or Go?
Powell said he will remain on the Board until a time TBD. He stressed this has nothing to do with Trump’s verbal attacks on him, but solely because of the DoJ’s investigation. It sounds like he needs more definitive proof that all DoJ investigations are closed. “I will leave when I think it’s appropriate to do so.”
“I will keep a low profile” and “I’m waiting for finality and transparency.”
But also, “I think Fed independence is at risk” and called the DoJ investigation “legal assaults.” He’s going to stay on the Board until he is certain those threats have been completely eliminated.
Inflation Outlook
When asked about the Hormuz blockade, Powell said, “Genius. Fool proof!”
Oh wait, that’s what Trump tweeted just as the FOMC meeting began…
Powell said “inflation is misbehaving” but that the impacts on inflation in the US are much less than what western Europe is feeling.
Rates
Rates popped, particularly on the front end. The T2 is up 11bps and odds of a cut by year end are just 3%, both of which are bad news for caps. Powell also added that, “Maybe a little bit of restriction is the right place to be” but “I don’t see the case for meaningful restrictive policy.”
Powell did say that “no one is calling for a hike right now” and that “if we need to hike, we’ll certainly signal that.” He said he always viewed neutral as somewhere between 3%-4% and Fed Funds is right in the middle of that.
The T10 peaked at 4.43%, matching the high since last July.
I think once the market digests the statement and the presser, rates will settle down a bit. The dissents were more about Warsh and less about the need for higher yields.
This Week
Core PCE and GDP tomorrow. Markets are bracing for some nasty inflation data.
The jobs report isn’t until next Friday.
This was Powell’s last FOMC meeting as Fed Chair, but there’s a good chance he’s still on the Board on June 17th when Warsh does his first FOMC meeting as Chair.
“I won’t see you next time.” - Jay$’s last words from the podium.