So says RBC in their preview of the Federal Open Market Committee tonight

(bolding mine)

At first blush, this is expected be one of the more uneventful FOMC meetings in some time. The likelihood of a hike is near zero, and the fact that there is no press conference or update to economic projections means the statement will be in focus.

  • But we think there will be important tweaks that will make this statement much more hawkish than the December version.

The economic assessment should get a slight mark-up from an already robust characterization.

  • That "economic activity has been rising at a solid rate" should still be evident. But a mark-up to household spending from "has been expanding at a moderate rate" to something that more closely reflects a consumer spending profile tracking near 4% real growth in 4Q is also in order.

That said, it is on the inflation front where we see the most noteworthy tweaks.

  • The characterization here should look much less dovish.
  • While it is certainly true that both headline and core PCE inflation remain below 2%, the Fed can no longer state that "market-based measures of inflation compensation remain low." 10-yr break-evens just hit a 3.5-year high at 2.09% and are up about 20bps since the December confab (ditto for 5-year break-evens, which have jumped 23bps in that span).
  • The market has been very sensitive to anything related to the inflation outlook and therefore we would not be surprised if a change like this elicits a notable reaction.

Beyond this, the wild card is also that the committee acknowledges some shift in the balance of risks following the passage of tax cuts.

  • Not only has this impacted equity valuations in a significant way (which theoretically increases financial stability risks), but corporate behavior (both through wage increases and capex plans) has shifted much more bullish. Insofar as this shifts the growth/inflation outlook, it should be reflected in a risks assessment that is no longer just "balanced."

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Earlier:

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