The Dec FOMC turned out to be uber hawks. Not only their DOTS, their SEP projections even Fed Chair Powell's press conference had one common theme: To out hawk sleepy risk assets globally. We were pleasantly surprised by this sudden turn around. But we wondered why now. What drove this FOMC to being uber hawk? We believe that Fed Chair Powell is ensuring that the new Trump administration is aware of what lies ahead if their election promises are implemented in full. Trump measures his economic success by equity market gains & Powell has ensured that the new administration is aware of the trade offs of announcing larger corporate tax cuts, large scale tariffs & immigration control. The Dec FOMC DOTS, Powell’s press conference language & the SEP projections are meant to counter any large-scale fiscal expansion of the new US administration. Fed Chair is the latest bond vigilante in town. He along with FOMC wont mind an uptick in US bond yields to counter the dream run in US equities as well as the red-hot US economy. We believe 10yr UST might retest Oct’23 highs of 5% by end Q1CY25 with DXY testing 110. That might be the end of US exceptionalism when high yields will eventually break US financial stability. Our score line currently reads: Powell-1, Trump-0.
