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March Pause Is "Live", Will FOMC Comms Push Back?

FED
March would be the first "live" FOMC rate decision in a long time, as it stands. Powell has throughout this hiking cycle preferred to steer the market carefully toward one decision or another to avoid volatility and to keep focus on the communications/guidance.
  • But implied probability of a pause vs 25bp hike at the March FOMC hit a 50%/50% chance (12.5bp priced) this morning. Meanwhile the current leadership "guidance" going into the blackout period was from Powell implying 50bp was firmly on the table, and that may well have been their base case as recently as the middle of last week.
  • Tomorrow's CPI will play a part in the decision, and market pricing could yet consolidate around a 25bp hike (50bp looks less and less likely barring an inflation shocker).
  • With such uncertainty about the US bank situation and how the Fed sees it impacting the economic outlook (let alone how it sees the latest jobs and CPI data), the 2-day FOMC looms large, particularly since the communications task was already going to be increasingly complicated by the new Dot Plot.
  • Given the way this Fed has handled hike uncertainty in the past it wouldn't be a major surprise to get some indication of which way the Fed is leaning by the start of next week (think June's 75bp hike communication via the WSJ).
  • That could especially be the case if - once the dust has settled a little in the next few days - the market starts pricing a pause but the FOMC still sees the risks of undertightening as being greater than those of overtightening given the run of strong data.
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