USDJPY TECHS: Outlook Remains Bearish

That list of comments seems to encompass a wide variety of opinions, and the overall tone from speakers seems to be slightly more hawkish than the December minutes’ commentary (and implied by Powell’s press conference comment) that "a substantial majority" saw the policy stance as "still meaningfully restrictive".

• In a press conference that is likely to be thin on details, any shift in Powell’s tone on perceived neutral or how restrictive policy is will be closely eyed.
• Powell noted at the December press conference that the reason to slow down cuts is because having cut by 100bp, “we are significantly closer to neutral” though “at 4.3% and change, we believe policy is still meaningfully restrictive…we are closer to the neutral rate which is … reason to be cautious about further moves
• In December, the “longer-run” dot in the Dot Plot rose from 2.875% to 3.00% - the 4th consecutive quarterly rise. While this isn’t considered to be the short-run “neutral rate”, it is the clearest manifestation of Committee members’ view that rates aren’t going back to pandemic lows.
• Also eyed will be any more insight on how the Fed regards the backup in longer-end rates: at least one FOMC member (Bowman) has highlighted the increase in long-end market-implied inflation expectations as a reason to be cautious in cutting further, though a large part of the nominal increase has been in real yields and – overall – term premia.
• Last time, Powell noted longer-run rates “are affected to some extent by Fed policy, but they’re also affected by many other things”. 

• In the single main labour force survey since the last BoC decision, employment growth was far stronger than expected in December at 91k (cons 25k) to build on the surprisingly robust 51k in November that has subsequently been revised down to 44k in annual revisions.
• Those revisions point to a slightly softer jobs market through Sep-Nov (with downward revisions led by full-time positions) before the same booming Dec but the changes don’t look particularly significant to us considering the underlying volatility in the data.
• The rough trend remains one of a rising unemployment rate, in December at 6.71% having started 2024 at 5.7% (unrevised) and 2023 at 5.1% (previously 5.0%), albeit with a welcome patch of strong jobs growth in the final two months of the year that helped tilt the unemployment rate lower from 6.89% in November.
• This recent recovery in jobs growth starts to look more encouraging considering immigration curbs will increasingly limit labour force growth going ahead, but further strength would need to be seen to have more confidence here. Wage growth area remains an interesting area.
• The labour force survey average hourly measures finally stepping lower in the past two months, to 4.0% Y/Y in December (revised up from an initial 3.8% Y/Y) for some moderation after a steady 5.0% Y/Y average through Jun 2022-Oct 2024.
• The BoC has tended to not put much weight on them, preferring slower moving but more comprehensive measures. One alternative metric is the fixed weight series from the lagged payrolls survey, which accelerated to a particularly strong 6.4% Y/Y in latest data for back in October.  

From our FOMC preview: In Wednesday's press conference, we hope (though somewhat doubt) that Chair Powell offers some further commentary on the rise in long-end yields, Committee sentiment on how far rates are from neutral, and whether uncertainty over policy has the FOMC considering raising their neutral estimates further.

• We have wrapped up the most recent commentary on “neutral” / “restrictive” language from FOMC members - all of the following comments were made after the December meeting unless noted otherwise. Note that the Central Tendency in the December projections for the longer-run rate was 2.8–3.6% (nominal), with a median 3.0%, a low of 2.375% and a high of 3.875%, versus the current Fed funds rate of 4.33%:
  • Bostic (pre-December cut): probably in the 3% to 3.5% range
  • Bowman: "the policy rate is now closer to my estimate of its neutral level, which is higher than before the pandemic"
  • Collins: "policy already closer to a more neutral stance"
  • Cook: it's appropriate to cut toward neutral over time
  • Daly: "3% nominal"
  • Goolsbee: policy still far from neutral, "over the next 12-18 months rates can still go down a fair amount"
  • Hammack: "not far from a neutral stance"
  • Harker: "somewhere around 3%"
  • Kashkari (pre-December cut): the neutral rate may be higher vs pre-pandemic, with policy not as restrictive (seeing economic resilience in the face of higher rates)
  • Logan (pre-December cut): "neutral fed funds rate of 2.74 to 4.60 percent"
  • Musalem (pre-December cut): "monetary policy rules suggest a federal funds rate between 4.3% and 5.4% for the fourth quarter of 2024. At 4.6%, the midpoint of the current federal funds target range is already well within the range suggested by policy rules, and below the median of this range"
  • Powell: "we are significantly closer to neutral" though "at 4.3% and change, we believe policy is still meaningfully restrictive ... we are closer to the neutral rate which is  reason to be cautious about further moves."
  • Schmid: rates may already be "very close" to the longer-run neutral rate
  • Waller: Policy is still restrictive, the median FOMC neutral estimate implies 3-4 cuts possible this year
  • Williams:  real long-run neutral estimate currently at 0.75% (2.75% nominal)