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comments underscore that the Fed’s dots will likely see a meaningful dovish shift.

Key Quotes

“Chair Powell’s assessment of where Fed Funds sits in relation to neutral remains “fluid” but the trend remains dovish. Last week Powell said, “federal funds rate is now within the broad range of estimates of the neutral rate”. That appears to be yet another shift on his part, albeit subtle, when compared with to his comments in Dec 2018 when he said, “Where we are right now is the lower end of neutral”.”

“Clarida echoed Powell’s “within the range” comments, noting; ” federal funds rate (is) now in the range of Federal Open Market Committee (FOMC) participants’ estimates of its longer-run neutral level.” NY Fed President Williams, longtime key “point man” on the neutral debate agreed, noting that the Fed is “”¦ right at neutral”, based on his estimate that real r-star is 0.5% + 2% inflation.”

“Separately, Brainard cited a key potential headwind for early 2020 last week, “The Bipartisan Budget Act, which is estimated to boost GDP growth by 0.3 percentage point, on average, per year in 2018 and 2019, is scheduled to expire in 2020. If agreement is not reached, spending levels could fall back to the sequester caps, which would amount to a significant headwind.”

“These comments underscore that the median dots – two hikes in 2019, one 2020 and a long run 2.75% neutral rate – will likely undergo significant revision.”