On the December FOMC

This is not the promised “dovish hike.” The interest rate of overnight “excess reserves” was hiked by only 20 bp, so it’s only four-fifths of a hike in terms of the effective funds rate. But the statement language was not strongly changed to indicate a high-bar of data dependency for any future rate hikes, which we believe had been promised in the November minutes, and which surely markets were expecting. This reminds of Yellen’s lift-off mistake in December 2015 when she hiked in the face of falling inflation, bond yields, oil prices, stock prices and forward earnings – plus systemic risk in China – and nearly triggered a recession. We think Powell already gets the message that he blew it. It will be a test of the man to see what he does to make up for it.