US Federal Reserve

With the Fed set to unveil its first balance sheet reduction in modern history - an event that is largely priced in - what traders are far more interested in, is what will happen to the Fed's "dots", where consensus anticipates no move for the 2017 dot, while the 2018 and 2019 dots could shift lower as the FOMC language turns slightly more dovish.

How could this dot "migration" take place?

First, as Adnan Chian observes, at least 4 Fed members need to move their 2017 dots lower to shift the median from 1 more hike in 2017 to no more hikes, i.e. December is "dead."

What if the Fed surprised today, and instead of only announcing a reduction in its balance sheet, it also sent an uber-hawkish signal by hiking rates 25 bps, something which virtually nobody expected? While stocks would certainly suffer an adverse reaction, as the Fed confirmed that its intention was to burst one or more asset bubbles, it may be just what many in the market desire.

Authored by Simon Black via SovereignMan.com,

Today’s the day.

After months of preparing financial markets for this news, the Federal Reserve is widely expected to announce that it will finally begin shrinking its $4.5 trillion balance sheet.

I know, that probably sound reeeeally boring. A bunch of central bankers talking about their balance sheet.

But it’s phenomenally important. And I’ll explain why-

From Bloomberg macro commentator Marc Cudmore

Today’s Fed meeting is critical for all financial assets. A large part of the framework for how to trade the year ahead will be clarified between Wednesday’s statement, the dot plot and subsequent FOMC member speeches in coming days.

Fed meetings are often overhyped, particularly by financial commentators. Don’t dismiss the hype this time. And because the Fed’s decision is so crucial for the path of FX and rates, every other asset hinges on the outcome by extension.

The Federal Reserve has manipulated bond prices for the last
10 years.  Yields in the US and abroad
are lower now than during the Great Depression – a period in time that could
justify such low yields.  For those with
short memories, bond markets are more expensive than before and right after the
financial crisis of 2008.  Longer dated
yields are at least 300 basis points richer than typical when inflation is
running around 2% as it is today.  Yes,