On the December FOMC

No statement language changes, except weak forward guidance that asset purchases would stay in place until the economy makes “substantial progress.” That had been signaled clearly in the minutes of the prior meeting, but there was no action on the hint that the Fed might extend maturities of its asset purchases, which would have been more stimulative. We don’t understand how the “dot-plots” can have fallen again, and how Powell can continue to call urgently for stimulus, and yet the Fed does not supply all the stimulus it might. Powell acknowledges that a pent-up demand surge next year could lead to a transitory bump in inflation, but that it would be unlikely to shift long-term inflation expectations or require tightening by the Fed.