Fade The Dot Plotters Equities Define The Reaction Function

The report argues that the Fed's dot plotters and futures markets are unreliable indicators for rate cycles. The author suggests fading this sentiment, projecting a first hike in 2027 as equities continue to dictate the Fed's policy response.

Key Takeaways

• 1.Dot plotters and Fed funds futures markets have poor forecasting records and should be faded in favor of market-led indicators like the 2Y Treasury yield.
• 2.The Fed's current reaction function is effectively governed by equity market performance, given the high concentration of household wealth in equities.
• 3.The author expects the first Fed rate hike in March 2027, predicting it will be larger than 25 basis points.

Table of Contents

• FADE THE DOT PLOTTERS . . . EQUITIES DEFINE THE REACTION FUNCTION FOR NOW
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