MBS Live Day Ahead: Fed Day: A User Manual

This is a quick guide designed to help you approach this afternoon's Fed events in a logical and useful way.  

What's Happening Today and When?

At 2pm ET: The Fed's official policy announcement will be released along with updated "economic projections" (aka "dots").  

At 2:30pm ET: Powell will begin his first press conference as Fed Chair

How do I figure out what's going on?

If you have the ability to tune in to MBS Live at 2pm, you will see newswire bullet points posted into the live chat.  A few minutes later, you will also see an update or alert shortly thereafter discussing the market's first reaction to the news.  

Can I just access the primary material that the newswires are based on?

Yes!  Links to the announcement and economic projections will appear on this page (on the March 20-21 line) a moment after 2:00pm ET.  You'll need to click on the PDF version of the "projection materials" in order to see the proverbial "dots."

What's all this talk about "dots?"

This refers to the "Dot Plot" that the Fed uses to visually display individual Fed member forecasts for the Fed Funds Rate.  It's grown to be quite a closely followed barometer of Fed sentiment and thus a big potential market mover.

OK, so the dots are important.  How about the announcement itself?

Today's announcement is seen as 3rd fiddle to the dots and to Powell's press conference.  We already know the Fed will hike rates today, and that they won't be making appreciable changes to forward guidance (i.e. they won't lay out a new strategy for future policy decisions).  

Yeah, what about Powell's press conference?

This is his first one, so it's a bit of an unknown.  If his congressional testimonies were any indication, there's certainly a chance that he'll be the most candid Fed Chair we've seen.  If he's candid about a more hawkish outlook, that would be bad for rates.  If, on the other hand, he says something about uncertainty/hesitation due to recalcitrant inflation/growth/productivity, it could be very good for bonds.  Either way, any big revelation from Powell can overshadow the message from the dots.  

So, what does that mean?

It means we could see one reaction at 2pm and another at 2:30pm.  These could be synergistic (which would make for the biggest potential movement), or in opposition (which would imply a reversal of the initial move by the end of the day).

Should I lock or float?

If you have to ask, you should lock.  Floating is serious business on Fed days.  Lock desks often shut down at 2pm or at the very first sign of volatility after 2pm.  This means it can be hard to get a lock in before a reprice, no matter how closely you're watching markets.  Granted, if you have plenty of experience with a particular lender and you know they aren't prone to this behavior, you could still consider a tactical float, but the risks involved cannot be overemphasized.