RBC: “The Fed Is Now Forced To Walk Back The Market’s Incorrect Dovish Interpretation”…”FED CREATES MORE ROPE TO HANG THEMSELVES WITH”

Thursday, March 16, 2017
By Paul Martin

by Tyler Durden
Mar 16, 2017

First, it was Goldman’s chief economist Jan Hatzius, who in a fascinating note explained why the market has totally misread the Fed’s tightening intentions, claiming the market surge is “not the reaction the Fed wanted”, alleging that the market’s dramatic “easing” response was “not the outcome the FOMC aimed for” and concluding that “at the margin, it will likely make them more inclined to tighten policy”, a polite way of saying that the Fed may now not be behind the inflationary curve, but that it is certainly behind when it comes to “explaining” to the market that it has run ahead of itself.

Now, in a follow up note, RBC’s head of cross-asset strategy makes the exact same point as Goldman, and warns that “the Fed will now view the market response as an ‘overshoot,’ and will perversely be forced to ‘walk-back’ the ‘incorrect’ dovish market interpretation with more hawkish rhetoric in coming weeks / months that will again whipsaw the rates market and likely-drive cross-asset vol higher.”

And since Goldman still has a direct hotline, both literal and symbolic, to former Goldman employee Bill Dudley who is in charge of the NY Fed, it would not be surprising if during the Fed’s next public appearance, an FOMC member makes it very clear that having both of its core original mandates, inflation and emloyment, supposedly under control, it is now taking on the 3rd one – preemptive market stability, by making sure that risk assets are halted in their bubbly tracks.

Below are the key excerpts from today’s note by RBC’s Charlie McElliggott:


The Rest…HERE

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