The Fed: Timiraos FOMC Preview
Discussion
Nick Timiraos is out this morning with his FOMC preview piece, and outside of a hawkish title and subtitle it is quite neutral. The piece profiles two camps of economists: those who believe a top-down view of the economy suggests underlying inflation pressures remain materially above the Fed’s 2% target, and those who believe a bottom-up view of the economy suggests supply and demand are broadly and quickly coming back into line. The conclusion of the piece is right in line with Waller’s pre-blackout message: underlying economic momentum justifies a July hike, but recent improvement in inflation keeps a September hike firmly up for debate.
Based on this piece alone my thought is Powell’s press conference will be very neutral, with Powell far from declaring victory but wide open to the possibility the Fed can engineer a soft landing. If risky markets sell off into Wednesday I think he’ll lean dovish, but barring any material weakness he’ll be neutral.
The one thing that’s gnawing at me is the upward move in 5y5y and 10y break-evens. Since the entire curve isn’t moving up I don’t think these moves are enough to push Powell to be a bit more aggressive, but it’s something to keep in mind, as there is NOTHING that will get the Fed to move quickly than a sharp move higher in break-evens.