July FOMC, the Last "Easy" Meeting

For the FOMC right now, we are in a two very interesting dualities:

1. There is a time inconsistency element between the market and the Fed’s reaction functions. The market thinks inflation is about to fall considerably, the Fed has set themselves up to react exclusively to spot month over month inflation prints. The Fed is saying look at spot CPI and the market is saying look at 10y breakevens.

2. The Fed has a clear job to do tomorrow but the “goals in conflict” (where the Fed has to weigh inflation risk vs. unemployment risk) theme is being pushed forward as the economic slowdown has happened a lot quicker than they thought it would. For tomorrow, this theme is not yet relevant. The Fed is still below restrictive and headline inflation is still accelerating, they told us that until both of those things change there is nothing to talk about.

Time inconsistency