Stretching out transitory
Sept 23, 2021
–Really? PCE Inflation was for 2021 was forced to reflect the realities on the ground in the SEP, moving from 3.4% to 4.2%, up EIGHT tenths. However, the projection for 2022 was only moved up 1 tenth, from 2.1 to 2.2%. This, despite the fact that shelter inflation hasn’t really fed through the data yet. Additionally, during the press conference, Powell said that bottlenecks were lasting longer than expected. Of course the dots moved up. Currently in 2022 there are as many members expecting one hike in 2022 as there are expecting to hold pat. In 2023 it’s more interesting; in June it was for 2 to 3 hikes, but in September there were 6 dots 1.0/1.25% or 100 bps higher than the current target. In any case green eurodollars bore the brunt of the selling (EDZ3, H4, M4 were weakest on the strip at -8 bps), while in treasuries it was the five year which rose a bit over 3 bps to 0.86%. Tens were essentially unchanged at 1.324%. 5/30 posted a new low at 98.5 bps, down just over 4 on the day.
–No matter when taper actually starts, Powell seems rather confident it will end in the middle of next year. He said he does NOT need to see a blockbuster employment report for taper conditions to be met, just a reasonably good report, and noted that many members think that conditions have already been met for taper. However, he is setting a much higher bar for “rate liftoff” conditions.
–Quite a stark contrast between a Powell press conference, where the Chairman easily answers all questions and Biden’s pressers.
