On the June FOMC

No rate hike, and a dovish statement about buying time to collect more data. Contradicting that is a sharp upgrade in the “dot” for year-end 2023, projecting a funds rate at 5-5/8%. That means two 25 bp hikes and two skips over four meetings. The mission is to disabuse the market of its belief over the entire intermeeting period that the first cut will come no later than January. But while the SEP raises the funds rate dot, at the same time it has lowered its estimate of unemployment and inflation. That’s a three-way combination of realities which, in the Fed’s thought-mode, cannot coexist. Inflation is collapsing, and this morning’s PPI is clearly signaling downright deflation. For all today’s confusion, the Fed has bought the gift of time over which deflation will be so obvious they will have no choice but to pivot. No more rate hikes.