FOMC Preview: 25 or 50?

25 bp for sure, but we think 50 bp is a 75% probability. That’s what it would take to un-invert the yield curve, and it is an appropriate response to the deep turn toward bearish and uncertainty reflected in the June SEP’s polling. The Fed has no inflation constraint now. And the Phillips Curve has been publicly discredited by no less than Ocasio-Cortez, though Powell can’t help but cling to empty remnants of it. The Fed is mired in cognitive dissonance, what Trump called in a tweet this morning a “faulty thought process.” The trick is for the FOMC to take credit for preserving the expansion – by “increasing accommodation” rather than relenting on mistaken tightening – while deflecting onto Trump blame for imperiling it, thus avoiding the appearance of political influence. Powell has set that narrative in motion. We think 50 bp is the whisper number, and warn of a negative market reaction if it’s only 25.