CB Views: January 2025 FOMC Preview

Scenario 

Probability 

Assessment

Hawkish Message

5%

• With no new forecasts until March, in order to come across hawkish, the statement would need to adjust balance of risks
• Presser: If chair Powell suggests that the forecasts from the December FOMC are no longer applicable, that is hawkish
• Market Implication: Minor risk off and parallel shift in rates up

Neutral Message 
Base-Case

75%

• First skip in normalization process has been priced-in for a bit
• The statement continues to indicate that the risks to achieving their employment and inflation goals “are roughly” balanced…
• Presser: Powell continues to stress they are data dependent, but doesn’t send a defiant message vis-a-vie Trump concerns
• Market Implication: Continuation of range trade, low vol event

Dovish
Message

20%

• The most dovish news would be if there are further tweaks to QT (most noteworthy is reallocating MBS proceeds to UST)
• Presser: Powell signals that the rate normalization process is not over and that it’s too soon to suggest neutral is higher
• Market Implication: Bull steepener but MBS spreads widen