‘Dovish’ Fed Admits Inflation Weaker, Says Balance Sheet Unwind To Start “Relatively Soon”

Wednesday, July 26, 2017
By Paul Martin

by Tyler Durden
Jul 26, 2017

With ‘zero’ expectations for a rate-hike today, all eyes are focused on any shifts in The Fed’s balance sheet normalization timeline (“balance sheet unwind to start relatively soon”) and its most-recently-dovish inflation outlook (following the weak June CPI print, The Fed now says “inflation seen rising to 2%” but is weaker”).

Fed holds rates unchanged, repeats inflation seen rising to 2%
Fed: labor mkt strengthened, activity rising moderately
Fed: job gains have been solid, unemployment has declined
Fed: household spending, fixed investment continued to expand
Fed: overall and core inflation declined, are running below 2%
Fed repeats mkt-based inflation compensation gauges remain low
Fed repeats survey-based inflation measures little changed
Fed repeats inflation to stay ‘somewhat below’ 2% in near term
Fed repeats risks to outlook appear ‘roughly balanced’

Expectations were The Fed will reveal the timing of its balance sheet unwind in September and wait to hike interest rates again until December.

Note that loss of the word “recently” before the language around inflation declining. That’s relevant. It nods at the fact that the dip in inflation has been more long-lasting.

Intriguingly, The ECB decided to shake up the market just minutes before The Fed’s statement…

The Rest…HERE

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