FOMC ‘dotplot’ saw a bit of movement but none that mattered - SocGen

In view of the Kit Juckes, Research Analyst at Societe Generale, the FOMC ‘dotplot’ saw a bit of movement but none that mattered as the median projection for rates at the end of this year is 1.375%, end 2018 is 2.125, end 2019 is 3 and the ‘longer term;’ median is 3% too.

Key Quotes

“The market was expecting some upward revisions and got none, seeing instead a slightly faster pace of rate increases for now but no change to the eventual destination. That has been received as fantastic news by risk assets and higher-yielding currencies, and as poor news for the dollar which has followed the subsequent fall in the real yield on TIPS down. 10-year US real yields have fallen from above 60bp to just 47bp at the time of writing, wiping out all of the post-NFP data gains.”

“The Fed’s reluctance to send a clear signal that there is more tightening to come, as opposed to a timid signal that they may goal bit quicker, has disappointed markets. But to be fair, the problem isn’t really with the famous dots. It’s with the market, which just doesn’t believe the Fed will tighten as fast as they say they plan to. If the market took the FOMC at their word and discounted a 3% Fed Funds rate at the end of 2019 and beyond, then we’d probably have a 3% nominal 10-year Treasury yield and a 1% real yield by now. So while I am quietly seething that the FOMC didn’t come out with a more hawkish message and cast off their dovish clothes more convincingly, I can’t escape the fact that the market just doesn’t believe the message they’re getting anyway.”