Statement: Almost Time To Change Forward Guidance (2/2)

The forward rate guidance is likely to remain unchanged again, though this is becoming a very close call.

• The current phrasing “In determining the extent of additional policy firming that may be appropriate…” has been in place for the past 4 meetings (Jun/Jul/Sep/Nov), and even the prior language hadn’t been that different (the prior guidance was “in determining the extent to which additional policy firming may be appropriate”…)
• When the FOMC wants to clearly signal that it intends for the hiking cycle to be over, it will adjust this language, and probably include a line about maintaining restrictive policy for an extended period.
• Our read of inter-meeting communications – including Powell repeating the “in determining the extent…” phrasing verbatim on the eve of the pre-meeting blackout – suggests that a change in the language is not forthcoming this month, even if data is turning in the right direction, the vast majority of the Committee appears to regard policy as being in a “good place”, and the Dot Plot will likely be signalling cuts ahead.
• That’s because as Powell has repeatedly said, they are not yet confident that they have achieved a sufficiently restrictive stance. And as he put it in the November press conference, once they are confident, they will then turn to the question of “how long will we remain restrictive?”.
• MNI thinks the shift in language could happen at the Jan 30-31 FOMC, pending further progress in inflation and jobs data making the Committee confident it is ready to enter the next phase of the monetary policy cycle.
• No change to quantitative tightening policy is expected, with no FOMC voters likely to dissent from the decision.

Source: Nov FOMC Statement - MNI Highlights