On the November FOMC

The FOMC statement made a small step toward sanity, by acknowledging lags in policy effects – which is a move toward risk management rather than a headlong jihad against inflation. This ratifies long-standing market expectations for only a 50 bp hike in December. In the presser, Powell was at pains to maintain the hawkish narrative despite this. But this slows the game down, and buys time for inflation to recede. The 10-year yield is now almost inverted to the funds rate, which has marked the end of the last three hiking cycles going back to 2000. Powell’s favorite yield curve has turned flat. At the same time, the political landscape is shifting with the prospect of a GOP congressional sweep next week, and influential Democrats are now moving to the high ground by second-guessing Powell’s inflation crusade as too risky for jobs. Bullard’s scandal should silence him to some extent, which will lower the temperature on inflationphobia in the media.