FOMC'S REVISED SEP: SOMETHING OR NOTHING?
Hello and thanks for reading this edition of the No Straight Lines Investments blog, I appreciate your time and attention.
As expected, the FOMC reduced the overnight rate by 25 bps on Wednesday.
With data going back to 1984, this is the first time that the Fed has lowered rates and treasury yields have gone UP!
Take a gander at the starting point of September 18 and see how the bond market has responded to Fed easing so far this cycle……
What was not expected was the revision to the SEP dot plots, which on first blush indicate stickier inflation expectations by Fed governors, with core PCE now at 2.5% for 2025, vs 2.2% in September.
Yes the number of expected cuts was reduced to 2 from 4, but I will show again the futures market expectations as of last week, and then the updated version as of Friday, both charts from David Kostin, GS:
As you can see, pricing suggests 34 bps of easing has been removed. It’s a meaningful change, but as a standalone, likely not a stark enough difference to elicit the sell off we witnessed. Therefore, the revisions are definitely SOMETHING.
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