Signal & Noise Filter

The Fed is the Noise

All macro eyes are on the upcoming FOMC meeting tomorrow. The noise is as follows:

• Base case is for a hawkish-hold on the policy rate.

• The soft inflation data for June provides the cover for not hiking in July.

• The committee will inject a stronger tightening bias and tee-up up a hike for Q3.

• The resumption of hostilities in the Middle East, diplomatic or kinetic, argues for more supply-chain driven inflation.

Since Fed Chair Warsh’s June press conference, these pages have argued that future FOMC meetings would have little left to reveal. In part due to Chair Warsh disdain for forward guidance, but also in part because the hawkish reaction function was already out in the open.

That thesis holds for July 28 – 29. But this week the noise has multiplied rather than thinned.

• A live Fed decision with no fresh dot plot.

• An earnings season whose headline growth rate is partly a GAAP accounting artifact.

• The two largest hyperscalers on earth reporting the same afternoon Chair Warsh speaks.

None of that is the signal.

The Signal: RRFNR Has Round-Tripped