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- Presser: If chair Powell suggests that the forecasts from the December FOMC are no longer applicable, that is hawkish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
|
