Daily Economic Update: March 21, 2024

 Yesterday the FOMC:

• Held their policy rate at 5.25-5.50%
• Raised their growth and inflation projections while keeping their median 2024 projection of rate cuts at 3 cuts.
• The median projection for Fed Funds did increase for 2025, 2026 and in the longer run.
• No changes were made to the balance sheet runoff, but they will likely need to slow the pace of runoff fairly soon.
• Powell was asked if the Fed will tolerate inflation above target for longer, but believes they are making good progress on inflation.  He refused to provide any answer around how long they will tolerate above target inflation, other than they'll get inflation down to target "over time".
• Powell said that the road to 2% will be "bumpy" but they don't really think that the story that inflation is coming back to 2% is changed by recent data.

The conundrum from yesterday's FOMC was that the Fed seems to see better growth and higher inflation over the balance of the year, yet might be willing to cut 3x this year anyway.  The Fed is also apparently willing to cut rates in the face of pretty loose financial conditions.  Ultimately this disconnect likely comes down things like estimates of the neutral rate and how you think about inflation data.  All things we've talked about in post over the past week (and forever).

Of course the Fed will remain data dependent and will judge the balance of risk to both sides of their dual mandate.

Equities were happy, with new all time highs and bond yields were lower across 2s, 5s and 10s.  The 2Y is now sitting around 4.60% while the 10Y is 4.27%.

On the day ahead we get BOE, March Madness begins (noon), Philly Fed, S&P PMI's.

XTOD: Powell has a zillion really good PhD economists slicing and dicing the inflation data, and if they're telling him Jan/Feb uptick is mostly noise, we should all take that on board.

XTOD: While I don’t disagree on the recent data, I recall that his zillion PhDs said to ignore inflation a few years ago.

XTOD: I agree the Fed staff "forecast" does not deserve notably more deference than anyone else's. But their ability to decompose exactly what is driving the data in real time is excellent.

XTOD: Nothing changed. Policy mistake then. Policy mistake today. Fed is gambling on layoffs kicking in full gear and UR going up. That’s not data dependency, that’s hope. And hope is not a strategy. At the first jump in claims, market will revert back to > 6 cuts in a blink.

XTOD: “Financial conditions have tightened significantly over the last year” - Powell 

Someone tell him that Unvaxxed Sperm coin is up 5000% this week.

XTOD: Some people find it very difficult to believe that you can hold these three thoughts in your head:

1. The Fed is making a mistake

2. I can profit from that mistake

3. Even though I can profit from the mistake its still a mistake and bad for society.

XTOD: Dodgers Star Shohei Ohtani’s Interpreter Fired, Accused Of ‘Massive Theft’

https://go.forbes.com/c/t2Sq

XTOD: You can't just walk into Hermès and buy a Birkin bag.  Instead, you need to have a history of buying other Hermès items.   In a class action lawsuit filed today, California consumers say that policy—tying the sale of Birkins to other products—is illegal.

https://x.com/greg_ip/status/1770524023505445109?s=20

https://x.com/TimDuy/status/1770526206984909140?s=20

https://x.com/greg_ip

https://x.com/INArteCarloDoss/status/1770583567225020443?s=20/status/1770531739246457040?s=20

https://x.com/sidprabhu/status/1770548014828114027?s=20

https://x.com/Forbes/status/1770578582663786816?s=20

https://x.com/Geiger_Capital/status/1770524292800823535?s=20

https://x.com/RobertFreundLaw/status/1770265438452384174?s=20