On the February FOMC

A single word changes in the statement – it’s now about the “extent” of future rate hikes, no longer the “pace.” With today’s mere 25 bp hike, the size of hikes is no longer on the table – it’s whether there will be any more hikes at all. We think there won’t. The statement downgraded the inflation threat by noting it has “eased somewhat,” and all the bogus explanations for it have been removed. The Ukraine crisis has been changed from an inflation threat to a source of “uncertainty,” that is, a growth threat. The balance of risks has changed from inflation to growth. The Fed had the chance to correct dovish expectations embedded in the money market curve, and instead it ratified them. We reiterate our call for “one and done” in this cycle (and today was the “one”). Nothing was said about the year-on-year contraction in the money supply, a first in the history of modern post-1959 data, despite the Fed’s mandate under the Federal Reserve Act beginning by calling for the management of monetary and credit aggregates.