On the December FOMC

As promised, a 50 bp hike slows from the previous four 75 bp hikes, and the dots for estimated future funds targets were raised – to 5-1/8% at year-end 2023, from 4-5/8% at the September FOMC. The Fed appears to be oblivious to visible evidence that all measures of inflation have peaked. The unemployment rate forecast has also been upgraded to 4.6% from 4.4%, implying 329,000 more workers will be thrown out of a job, added to the 1.26 million already forecasted in September. Markets are completely looking through all this, with the Fed funds futures markets continuing to assume that the Fed will not hit its year-end dot – not the new higher one, and not even the old lower one. These markets may be relying on the pivot by the administration and the new Congress away from inflation-fighting and toward recession-fighting.