Watch Guidance Change, Powell Pushback, Dots Distributions

With that said about the potential Dot Plot revisions, as we noted yesterday, the softer CPI is much more likely to manifest itself in the Statement and press conference, if at all.

• We're more inclined post-CPI to think participants will favor a slightly more dovish statement, altering "ongoing increases" in the funds rate to "some further increases" in rates is appropriate, albeit with a hawkish characterization on keeping rates in restrictive territory for "some time" (more here). At this point, keeping the sentence intact is probably a hawkish signal.
• For Powell's presser, the main question is whether he pushes back against the market's dovish interpretation of his Nov 30 Brookings comments and tone.
• Prior to that, Powell seemed more concerned about the risks of under- than over-tightening, but his characterization of the CPI outlook suggested a re-appraisal of the situation. We would expect him to push back against this dovish interpretation, reminding that there is a "ways to go" and that rate cuts are not yet in the discussion (though going as far as "we're not even thinking about thinking about cutting rates" might be too extreme, especially given likely evidence to the contrary in the Dots).
• Also of note will be how he responds to the inevitable question about whether the FOMC is leaning toward a further downshift from 50bp to 25bp in Feb. We'd expect him to say that hasn't been decided, implying both are on the table depending on the data.
• For the Dots distributions, again assuming nothing changed since yesterday, we are looking beyond the medians. For those who expect a 5.1% median, it is seen as a close call (8-9 participants at or below 4.9%, just 10-11 at 5.1% or above), with even the most hawkish analysts' dot plots seeing 7 at 5.1% and just 3-4 above that.
• If it's a 4.9% median, we'll be eyeing the number of dots below 4.9% (ie one hike or fewer, or even cuts in 2023): 7 or more is possible in a dovish dot plot.