The only thing that goes down more regularly than the dots is Valeant

And so another Fed day arrives.  As of the time of writing, the famous pre-FOMC drift has yet to materialize, with equities (ex Valeant) doing very little, and on low volume.   This is perhaps another example of the Heisenberg Unprofitability Principle, which states that you can profit from a market anomaly or publicly disclose it, but you can't do both at the same time.  Valeant longs, meanwhile, are just hoping for Schrodinger's Dead Cat bounce so that they can escape with a bit of their money (if not their dignity) intact.

As for the FOMC, only 4 of 98 economists in the Bloomberg panel are calling for a rate hike, which with this Fed means the chances of one are close to nil.   Much as Macro Man might wish for the days when the Fed had the capacity to deliver genuinely hawkish surprises, time is clearly better spent pondering what the committee will do rather than what they should do.

If we check out a panel of key indicators, we see that 2/3 of them have improved since both the January and December meetings.  While this would ordinarily suggest another rate hike at this point in the cycle (given that both pillars of the dual mandate saw improvement, most particularly inflation), the more interesting considerations are what it might mean for the statement and the somewhat tiresome charade of forward guidance.

It seems likely that the Fed will leave the door open for a move in the relatively near future, perhaps as soon as April.  The key question is whether that door will be ajar or gaping wide open.  Two of the indicators the street will look at in this regard will be the statement on the balance of risks and the dot plot.

In December, the statement characterized the risks as balanced.   In January, the reference to the balance of risk was eliminated altogether.  Based on the panel displayed above, it would be hard to argue that the risks look any worse than December, particularly with regards to the dual mandate.   That being said, a number of Fed speakers have highlighted inflation expectations (and the downside risks they present), thereby adding yet another entry to the laundry list of excuses not to go.  On the other hand, the Fed are a bunch of academics, many of whom subscribe to a Phillips curve view of the world.  In that vein, the ongoing resilience of the labor market coupled with an uptick in core inflation  might suggest more inflation on the way, as Fischer hinted a week or two ago.  As such, characterizing the risks as balanced or nearly balanced looks the most likely option, which would keep an April hike firmly on the table.

As for the dot plots.....well, to be honest the dot plots are just complete rubbish at this juncture.   They only seem to exist to provide an excuse to be marked lower, thereby generating "free accommodation".  While that's not technically true (the dots were marked higher during the taper, and lower as soon as it ended), it still captures the vast bulk of the shifts since the introduction of the device.

Put another way, the Fed are like that terrible market strategist who always has the same 1 year forecast regardless of price or fundamental shifts.  After all, the Fed has been forecasting the 1 year forward Fed funds rate to be above 1% consistently since September 2014.   Needless to say, we're still waiting.

Naturally, we can expect the dots to be marked down again, at the very least eliminating March from the four hikes that had previously been implied.   Would it come as a surprise if the Fed got rid of 2 hikes for 2016?   Not all all, if you've been paying attention.  Even though the rates market is only priced for one, it would still find a way to rally on this development.  Dots further out will also get marked down, but frankly the whole thing is such a farce that Macro Man cannot muster the energy to care by how much.  After all, they'll only get knocked down again in June, anyways- these days the only thing that goes down more regularly than the dots is Valeant.

As for the economic projections, it seems likely that the inflation forecasts will have to be marked higher, though not by too much (because then the Fed would need to explain why they hadn't moved rates!)  Frankly, the evidence suggests that the best thing that they could do to generate inflation is to maintain a pessimistic forecast.

Finally, Macro Man cannot resist providing at least one small normative comment.   The Brainerds of the committee seem to spend a lot of time worrying about the risks posed by China, the risks posed by Europe, the risks posed by inflation expectations, etc.   Well, what about the risks posed by low rates?  The Fed, after all, has a tremendous record of allowing financial imbalances to occur during periods of accommodative policy...imbalances that have a nasty way of ending badly.

Nonfinancial corporate debt issuance has been robust, to say the least....while we've already seen the poo hit the fan in the energy patch, is it really in the best interests of long term financial stability to encourage corporates to become addicted to issuing debt at such low yields, particularly when the proceeds seem to be going into buybacks rather than investment?

Well, apparently that's someone else's problem....let's leave it to the macroprudential folks to sort out, eh?  That way the Fed can focus on the proper dual mandate of US monetary policy, namely the SPX and RMB.