Weekly Signal & Noise Filter
Looking at a Q3 2023 Do-Over?
The information surface has shifted.
We start with the marginal hawkish movement in the dots, and a new baseline expectation of two policy rate cuts versus three by the FOMC for calendar 2024.
Governors Waller and Kashkari have signaled as much with recent commentary.
Waller’s recent speech entitled, “What’s the Rush?”, and Kashkari’s suggestion of leaving sleeping dogs sleep (“maybe this constellation is neutral…so why do anything?”) were clear tells of their motivations and intentions.
The FOMC had signaled it is willingness to look beyond one month of hot inflation data.
Most members openly downplayed the idea that January inflation was a sign of pending inflationary acceleration and acknowledged the seasonal issues.
Two months of hot data (likely for February, as flagged on these pages) becomes problematic.
The current state of the labor market gives the FOMC the confidence that time is on their side to kick the can on cuts in terms of timing and magnitude.
The market knows this and has priced it. The noise around the shift to a market that is looking at two policy rate cuts instead of three must be filtered for contextual meaning.