On the March FOMC

https://trendmacro.com/system/files/reports/20190320TrendMacroLuskin-V1.pdf
Donald L. Luskin
Wednesday, March 20, 2019
Powell brings the whole FOMC on his apology tour. Mystery remains for the balance sheet.
Federal Reserve
US Macro
US Bonds
More “patience,” with the 2019 “dot-plots” moving down to show not even a single rate hike. It’s unanimous: the whole FOMC has joined Powell on his post-December apology tour. A new normalization policy statement today makes it official that run-off of Fed’s asset portfolio will be tapered from May to September, and stop at a level of about $3.5 trillion. Maturing and prepaying MBS will be reinvested in Treasuries with an average maturity equal to overall Treasuries outstanding. There is still no plan for the maturity structure of the portion of the Fed’s portfolio currently in Treasuries. No surprise that equity markets would be cheered by evidence that the rogue chair has been reined in. But this emphatic dovishness, and the bias toward a shorter-maturity balance sheet, ought to point to higher long-term Treasury yields, not the lower ones we saw today in reaction.