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Those Dang Dots

September 22, 2021

Welp, 9 out of 18 FOMC members now expect a rate in 2022.  The headlines are going to say the Fed expects a hike next year.  By now, you know where I stand on this.

Powell said that substantial further progress has already been made on inflation, so the key determinant moving forward will be the labor market.

Here are the updated year-end Fed Funds projections.

2022 – 0.3%

2023 – 1.0%

2024 – 1.8%

Source: Bloomberg Finance, LP

Powell said the test for rate hikes is far more stringent than the test for tapering.  Remember:

Hiking = applying the brakes

Tapering = taking foot off gas



Tapering “may soon be warranted”, but the Fed stopped short of confirming November 3rd meeting as the start.

Powell said the test has “been all but met” and that he doesn’t need an extraordinarily strong job report in two weeks to move forward with tapering at the next meeting.  Sounds like he just wants confirmation that delta has frozen the labor market and expects tapering in November.

He did suggest tapering will conclude around the middle of next year.

Most importantly, he also reiterated that rate hikes would not be tied to the conclusion of tapering.


Updated Economic Forecasts

The Fed also updated its Summary of Economic Projections, last updated in June.

GDP – 5.9% this year, slowing to 3.8% next year (notably, revised down from June)

UR – 4.8% this year, down to 3.8% next year

Inflation – 3.7% this year, down to 2.3% next year (notably, revised up significantly from June)


Digital Currency

The Fed is investigating whether it should launch a digital currency.

Hi bitcoin, bye bitcoin.



Powell was more hawkish than expected.   Hikes are still quite a way off, but inflation has surprised to the upside.

“We want inflation expectations to be anchored around 2.0%” and that should be the primary objective as we move forward.

This strikes me as the primary takeaway.  If expectations remain elevated, the Fed may have to take steps to dampen them.  Whether that’s forward guidance or an actual hike remains to be seen.

Front end is up, with the market having to price in some possibility of a rate hike next year.

T2           0.24% (+0.02%)

T10         1.32% (unch)


FOMC Prop Bets

For fun. we like to spice up the press conference with prop bets.  Yes, we actually know what color ties he most frequently wears!

  • Will the Fed explicitly state tapering will begin in November?
  • Will Powell be wearing glasses at the start of the press conference?
  • Blue/Purple/Other – what color tie with Powell be wearing?
  • Will Powell be asked about the trading activity of Fed Presidents?
  • Will Powell be asked about his term expiring in February?
  • Will the first question be asked by a woman or a man?
  • Does he use the word, “China” in his press conference?
  • Where will the 10T be at 4:00pm?
  • Will someone on the Zoom call be wearing a mask?