It’s Two! Two Feds in One! Friday, December 15, 2023

The Fed’s dovish message in Wednesday’s FOMC statement was not contradicted by the usual “yes, but” from Powell, who said rate cuts were discussed at the meeting and that significant progress had been made on the “sticky” components of inflation. Now Williams is doing the “yes, but” by flatly stating there was no discussion of rate cuts, despite all the “dot plots” having been moved lower. Markets yesterday moved the implied certainty of the first cut to March, as we’ve been predicting for months. As of this writing, after Williams’ statement, markets still give a March cut a 78% probability. By March inflation will have collapsed further, deflation will begin to become inescapably evident, and the first cut will come.