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"Patient" FOMC Leaves Rates Unchanged, Talks Down Balance Sheet Unwind Trajectory

<p>With a 1% probability of a rate-hike today, all that matters is The Fed's tone (better be uber dovish) and any language shifts on the balance sheet normalization.</p>

<p>The Fed capitulated:</p>

<blockquote>
<p>"In light of global economic and financial developments and muted inflation pressures, <strong>the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate</strong> may be appropriate to support these outcomes.''</p>
</blockquote>

<p>*  *  *</p>

<p><a data-image-external-href="" data-image-href="/s3/files/inline-images/2019-01-30_10-31-48.jpg?itok=zEdxj5uo" data-link-option="0" href="https://www.zerohedge.com/s3/files/inline-images/2019-01-30_10-31-48.jpg?itok=zEdxj5uo"><img data-entity-type="file" data-entity-uuid="f2486db0-f298-4e0c-a22e-bdbb27d9bc78" data-responsive-image-style="inline_images" height="210" width="500" srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2019-01-30_10-31-48.jpg?itok=zEdxj5uo 1x" src="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/2019-01-30_10-31-48.jpg" alt="" typeof="foaf:Image" /></a></p>

<p>Since The Fed hiked rates in December, Gold is the clear winner...</p>

<p><a data-image-external-href="" data-image-href="/s3/files/inline-images/2019-01-29_10-32-44_0.jpg?itok=L8ZywIIq" data-link-option="0" href="https://www.zerohedge.com/s3/files/inline-images/2019-01-29_10-32-44_0.jpg?itok=L8ZywIIq"><img data-entity-type="file" data-entity-uuid="18117de8-6d65-4906-9dfe-bbacc025597c" data-responsive-image-style="inline_images" height="302" width="500" srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2019-01-29_10-32-44_0.jpg?itok=L8ZywIIq 1x" src="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/2019-01-29_10-32-44_0.jpg" alt="" typeof="foaf:Image" /></a></p>

<p>But we note that stocks and the market's perception of The Fed's dovish/hawkish-ness are joined at the hip...</p>

<p><a data-image-external-href="" data-image-href="/s3/files/inline-images/2019-01-30_9-09-13_0.jpg?itok=1OVLnSDt" data-link-option="0" href="https://www.zerohedge.com/s3/files/inline-images/2019-01-30_9-09-13_0.jpg?itok=1OVLnSDt"><img data-entity-type="file" data-entity-uuid="6b1845ec-10bc-47ac-b6d0-0e5f9eb10499" data-responsive-image-style="inline_images" height="245" width="500" srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2019-01-30_9-09-13_0.jpg?itok=1OVLnSDt 1x" src="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/2019-01-30_9-09-13_0.jpg" alt="" typeof="foaf:Image" /></a></p>

<p>Somehow, The Fed has got to slowly but surely jawbone its outlook down to the market's uber-dovish perception without spooking investors that something very serious is going on...</p>

<p><a data-image-external-href="" data-image-href="/s3/files/inline-images/2019-01-30_10-33-53.jpg?itok=zkrrdMUh" data-link-option="0" href="https://www.zerohedge.com/s3/files/inline-images/2019-01-30_10-33-53.jpg?itok=zkrrdMUh"><img data-entity-type="file" data-entity-uuid="6f8846c8-4eee-4d9f-a0aa-172bf30496ab" data-responsive-image-style="inline_images" height="224" width="500" srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2019-01-30_10-33-53.jpg?itok=zkrrdMUh 1x" src="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/2019-01-30_10-33-53.jpg" alt="" typeof="foaf:Image" /></a></p>

<p>Markets faded from their highs into the Fed Statement:</p>

<p><a data-image-external-href="" data-image-href="/s3/files/inline-images/2019-01-30_10-50-05.jpg?itok=ep9cd1-v" data-link-option="0" href="https://www.zerohedge.com/s3/files/inline-images/2019-01-30_10-50-05.jpg?itok=ep9cd1-v"><img data-entity-type="file" data-entity-uuid="c56ecdb1-e535-43fa-a4bf-83505c21934d" data-responsive-image-style="inline_images" height="344" width="500" srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2019-01-30_10-50-05.jpg?itok=ep9cd1-v 1x" src="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/2019-01-30_10-50-05.jpg" alt="" typeof="foaf:Image" /></a></p>

<p><strong><u>So, did The Fed deliver?</u></strong></p>

<p>They appeared to do so - folding entirely to the market -</p>

<ul><li>
<p>Fed <strong>removes reference to further gradual rate increases</strong></p>
</li>
<li>
<p>Fed says it plans to continue with current floor approach</p>
</li>
<li>
<p>Fed says it’s <strong>prepared to adjust balance-sheet normalization</strong></p>
</li>
<li>
<p>Fed reiterates federal funds target is primary policy tool</p>
</li>
<li>
<p>Fed says <strong>economic activity rising at solid rate, jobs strong</strong></p>
</li>
<li>
<p>Fed says <strong>labor market strengthened, unemployment remained low</strong></p>
</li>
<li>
<p>Fed says <strong>spending grew strongly, investment moderated</strong></p>
</li>
<li>
<p>Fed says core and headline inflation remain near 2%</p>
</li>
</ul><p>So The Fed is saying everything is awesome with the economy but we are panicking out of our rate-hike and balance sheet normalization process because the market shit the bed?</p>

<p><u><strong>The biggest change,</strong></u> as Goldman previewed:</p>

<blockquote>
<p><em><strong>the FOMC adds "patient" rate outlook amid muted inflation and global developments, and introduces flexibility in balance-sheet normalization.</strong></em></p>

<p>The Fed <strong>removes a statement about "some further gradual increases."</strong></p>

<p>The line about<strong> "balance of risks" is also removed, </strong>replaced by a line about policy "patience amid muted inflation and global economic and financial developments."</p>
</blockquote>

<p>*  *  *</p>

<p>Bear in mind that the S&P 500 Index has declined on the day of each of the seven decisions he's presided over. According to Bespoke Investment Group, <strong>that's the longest Fed-Day losing streak on record. </strong></p>

<p><a data-image-external-href="" data-image-href="/s3/files/inline-images/2019-01-30_10-52-54.jpg?itok=Qlydz29Q" data-link-option="0" href="https://www.zerohedge.com/s3/files/inline-images/2019-01-30_10-52-54.jpg?itok=Qlydz29Q"><img data-entity-type="file" data-entity-uuid="8c52d30f-28ae-4e0b-9dbe-93da03dff495" data-responsive-image-style="inline_images" height="263" width="500" srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2019-01-30_10-52-54.jpg?itok=Qlydz29Q 1x" src="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/2019-01-30_10-52-54.jpg" alt="" typeof="foaf:Image" /></a></p>

<p>*  *  *</p>

<p>Full redline Fed statement below:</p>

<p><a data-image-external-href="" data-image-href="/s3/files/inline-images/2019-01-30%20%281%29_0.png?itok=tHOZtDoL" data-link-option="0" href="https://www.zerohedge.com/s3/files/inline-images/2019-01-30%20%281%29_0.png?itok=tHOZtDoL"><img data-entity-type="file" data-entity-uuid="e4428973-ee1c-4f2b-959c-40db9a6ad876" data-responsive-image-style="inline_images" height="429" width="500" srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/2019-01-30%20%281%29_0.png?itok=tHOZtDoL 1x" src="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/2019-01-30%20%281%29_0.png" alt="" typeof="foaf:Image" /></a></p>

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