"Curioser and curioser!" Cried Alice (she was so much surprised, that for the moment she quite forgot how to speak good English.)
As we await today’s FOMC decision, Bloomberg's Richard Breslow has been struck curious by how many people are speculating that the accompanying statement might lurch back hawkish. For a Fed that has had such notable lack of success seeing clarity in its crystal ball, that would be remarkably aggressive.
July is out, so we’re talking about a September meeting that’s eight weeks away with lots of data and known and unknown events in between. The most they can credibly say, is they’re open-minded and data dependent.
[ZH: But even then, how do they remain credible in light of this…]
The Fed worked too hard lobbying the market to expect a June hike which would precede more to come. They put a lot of credibility on the line. Only to be utterly blindsided by events. Will they be willing to go out on that same limb again? Game theory doesn’t suggest they’re about to get lucky.
The last time we heard from Chair Yellen was her Humphrey- Hawkins testimony, a full month ago. And she was dovish. Remember? Isn’t it reasonable to assume that Jackson Hole on Aug. 26 would be a more sensible (and safer) time for a serious update on intent? Especially if it’s meant to direct a significant market repricing.
A lot has, understandably, been made of the waves of downside buying in eurodollar options targeting December as well as 2017. Similar strategies, also in size, were executed ahead of last June’s meeting. Taking a shot or trying to find mis-priced bets is very different than knowing something.
The weak two and five-year U.S. Treasury auctions so far this week may reflect the market repricing the probability of fiscal policy finally being introduced into the global mix. A reasonable cause for traders to be cautious given the rhetoric. But a large leap of faith for the Fed to base commitments.
Interesting to be having this debate on a day that Chinese equities fell over 3% to start the afternoon…
And also on a day when durable goods plunged. (so China turmoil and weak data… that was lucky timing)
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