Fed’s Powell leaves markets looking shaky after raising rates and writing down the hike path

Highlights from the December 2018 FOMC press conference 19 December 2018

Opening remarks

Some cross currents have emerged
Stronger econ is benefiting most Americans
We have seen developments that signal softening
Financial market volatility has increased
Financial conditions have tightened
Conditions haven’t fundamentally changed the outlook
Lower rate of dot plot should support the economy
Policy is not on a preset course
Most on the FOMC see econ doing well in 2019
Fed raised rates faster than expected in 2018
Policy will provide a smaller boost to the econ in 2019 (in other words, the economy has got to learn to stand on its own two feet)

Q&A

Inflation has come in a touch below expectations
Inflation trend allows FOMC to be more patient going forward
There’s a fairly high degree of uncertainty on rate path
There’s been a sense of concern among firms and market people about global growth
Political concerns play no role in Fed discussions and decisions
We’re not looking at changing our inflation target
Dot plot is useful
Econ has shown participation can move higher.
Wages increases have been gradual but I expect them to continue
Prime age labour participation remains low

Pretty low key all said and done. Markets have been all over the place with USD up across the board but a risk off mood seeing JPY buying as Us stocks and 10 year yields drop. That’s kept USDJPY hopping from one foot to the other. but in a tight range.

Probably the key comment is the one on Fed policy offering a smaller boost to the economy next year. Welcome to normalisation folks. It’s been a while and some in the market will be of a certain age not to have even been through it.

the question now becomes “what happens next?”. That in itself could be quite messy as we’re now going to see shifting Fed pricing mixed in with holiday squaring. It could be like watching a forex food blender.