Dot dispersion

It happened. The Fed lowered the discount rate by 25 bps to 4.25%, but without consensus, in fact some members of the FOMC committee where almost 300 bps apart in their views of official interest rates as per the dot plot below. And in the press conference, J Powell was more hawkish than expected, implying that once again, this may not have been the beggining of a new dovish cycle. Last year they cut 50 bps and they stopped. He entertained the same idea yesterday. The difference this time is the amount of pressure the White House and the Treasury is imposing. If you look at the dot plot below, it does show a Median lower path forward for rates, but with huge dispersion. The dot that is circled, is Trump’s new Fed governor appointee, Stephen Miran. That dot tells us where Trump sees and wants official interest rates. Whoever he appoints to Fed chairman, is going to have a clear directive of where rates need to be, irrespective of what inflation and unemployment are. After the meeting, equity indices and bonds ended up flat, with the dollar a tad lower.

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