On the December FOMC

 The statement put “the extent and timing of adjustments” at risk. It appears to be an inflation panic, with the SEP strongly upgrading 2025 inflation expectations, and not returning to target until 2027. When asked why the cut today, then – or any at all in 2025 – Powell had only word salad. It is clear to us that he does not support this new hawkish bent, has lost control of his committee, and is unable to put a coherent public face on it. Markets fully expected this “hawkish cut,” but are reacting badly to the institutional disarray on embarrassing display. Powell insists that policy is “still meaningfully restrictive,” but at the same time he does not know where the neutral rate is. The SEP upgraded it again, with the top “dot” only 50 bp above the funds rate. We think policy is indeed approximately neutral already, and do not see any recession risk in the Fed’s policy path. When markets have processed the institutional confusion seen today, they will recover smartly.