Scenario | Probability | Assessment | |
Dovish Pause | 5% | A unanimous vote to pause (maintain the current target range for the federal funds rate) and updates to the task force on inflation frameworks would be dovish. Short of that, it will be difficult for Chair Warsh to present a dovish message at the press conference as he gets pressed on the hot September CPI/PPI print.
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Neutral Pause | 35% | A unanimous vote to pause is possible, but it would likely be tempered with a balanced press conference. The way Chair Warsh responds to questions on the recent inflation data will dictate much of the tone. He is unlikely to dismiss the inflationary signals but may imply that the Fed can take its time assessing the appropriate path for overnight rates, perhaps by insisting that the Fed is not a preset course to raise rates (justifying a skip at this meeting). He can also emphasize that inflationary pressures are really stemming from geopolitical events outside of the Fed’s control. In our view, such responses would be perceived as neutral.
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Hawkish Pause Base-Case | 55% | Statement: The characterization of the economy is expected to remain the same as the last FOMC statement: consumer spending and capital investment are “strong,” the labor market is “balanced” with jobs growth keeping up with the size of the labor force (i.e., breakeven rate), and inflation is elevated. The vote count, however, may signal hawkishness with the potential for 3 dissents in favor of a hike at the October meeting. Presser: Chair Warsh’s tone tends to come across as hawkish in many of his speeches, and at times, during FOMC press conferences. We expect the Chairman to avoid signaling any sort of forward guidance, but he will certainly be pressed on the recent inflation figures that came in unexpectedly hot. Fully acknowledging the latest signals while insisting that “inflation is a choice” would reinforce the more hawkish data.
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Hawkish Hike | 5% | Odds are low, but with futures market pricing-in a very low probability of a hike, changes to the policy rate would, in and of itself, be very hawkish, regardless of comments made at, or tone of, the press conference.
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