On the December FOMC

“Liftoff” is a reality. Based on immediate market reaction – stocks higher, long-term Treasury yields unchanged – it would seem that the Fed succeeded in convincing markets that the hiking regime begun today will be data-dependent, gradual and shallow, and will have a low terminal point. All the “dots” came down sharply, and the familiar “38 words” have been replaced with a more nuanced “44 words,” assuring a low funds rate basically forever. We continue to believe this rate hike is a mistake, given stresses in credit markets, a slowing in macro statistics and falling long-term inflation expectations, and expect it will be reversed. With the rationales for “liftoff” so thin, we wonder whether the Fed has a hidden agenda, perhaps trying to get ahead of a gradual de-dollarization in China.