Lots of balls in the air as the FOMC/Press conference nears

The dollar has moved lower in the NY session into the FOMC meeting. That despite better wholesale PPI price increases today which threatens to rollover into the core PCE inflation.

Some things to watch:

  1. Do they go 3 or 4 times in 2018? This would be #2 for the year. The Fed projected 3 (with the end of year projection at 2.1%) at the last meeting. However, a swing to 4 means the Fed will simply imply a hike at each meeting where there is a press conference planned. With the Unemployment rate at 3.8% and inflation expected to tick up toward the 2.0% target (Core PCE is at 1.8% now), a nudge up would not be all that surprising. Then again, Powell has tried to take the importance out of the dot plot. So, he may encourage status quo. I think there is a better chance for nudging it up.
  2. How many in 2019? The expectation for 2019 was 3 hikes in 2019. With inflation still at 1.8%, they may choose to keep that projection in place. Of course if they see 2 more hikes in 2018, that 2.9% will head up to 3.1%
  3. How will the Fed see GDP, Unemployment and PCE now?. At the last projections, they saw 2018 GDP at 2.7%. The 1Q came in at 2.2%. The 2Q is looking stronger (Atlanta Fed sees 4.6%. NY Fed sees 3.1%. If it is 3.6% that would imply 2.9%. Do they go with a higher number or do they expect growth to slow down in the 2H? For employment the unemployment rate is at their end of year expectations from the last estimate of 3.8%. Do they lower that too? For core PCE, the end of year projection in March was 1.9% in 2018. It is currently at 1.8% (dipped from 1.9% at the last estimate). Do they ratchet that up. All these projections have the potential for improvement given the tight labor market and 2Q growth estimates. The Fed could also be more cautious because of potential headwinds from trade/geopolitical consideration
  4. Does Powell change press conferences to after every meeting? The market was thrown that trial balloon yesterday and it sent the dollar higher. Old news now? Powell may also explain it away as being more transparent and something he feels is important. The good news from his first presser, is he tends to be shorter and more succinct. If I recall it was about 45 minutes vs an hour for Yellen. If only he could encourage Draghi to do the same.

With the dollar falling, into the rates hike it will be interesting to see the price action on the news. I would expect the dollar to get more bid, but as always, it is the nuances of market. Pay attention to the technical levels outlined in the morning posts.