On the December FOMC

With the year-end 2024 “dot plot” moving to 4-5/8% from 5-1/8%, we have the first-ever lowering of rate guidance in this hiking cycle. And with the little but critical word “any” added to qualify future rate hikes, it’s now official the cycle ended already, five months ago, at the July FOMC. Expectations for something like this have driven rallies in stocks and bonds since the November FOMC, when we pointed out the broad hints to this denouement. Today didn’t disappoint, and Powell’s full-throated underscoring of the message of the is something of a surprise. Market-implied funds rate expectations, already way ahead of the Fed’s “dot plot,” have gotten even further ahead as of this writing. Markets are moving toward our prediction that the first cut will come at the March FOMC. Inflation will continue to fall and morph into deflation. Despite concerns with lags in the Fed’s scorched-earth tightening regime, there will be no recession.