Fed Officials Widely Support Yellen’s Timeline For Policy Tightening…

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Fed Chairwoman Janet Yellen surprised the market last week with her “6 months” estimate when asked to define how long will it be after the end of tapering to the first rate hike, and surprisingly, her colleagues tend to agree, and here are their recent comments:

  • (US) Fed’s Bullard (dove, non-voter): Reiterates don’t think policy has changed, Yellen comments not much of a surprise -comments on Monetary Policy in Hong Kong – Fed would probably change path of taper on if the economy was moving off track in a significant way from what we previously expected – There is some ambiguity on the ending date for QE – Fed decisions depend on the data not the calendar – Sees unemployment below 6% by end of 2014 (Note: In Feb said he saw the unemployment rate at 6% by Q4 2014) – Need to make more progress on labor markets before considering rate hike.
  • (US) Fed’s Plosser (hawk, FOMC voter): Fed needs to align public expectations with its plans; First rate rise to depend on state of economy and Fed’s goals – There are limits to how much the Fed can reveal at their meetings. – Fed needs to change policy as Fed gets closer to desired goals.
  • (US) Fed’s Lockhart (moderate, FOMC alternate): Still sees the first Fed funds rate hike by H2 of 2015; First rate hike likely more than 6-months after the end of QE3
  • (US) Fed’s Fisher: Rates need to remain near zero until recovery was underway, must be careful that Fed does not wait too long before it begins to tighten – personal view is within the central tendency on first rate increase.

If you read between the lines, you can see that while most don’t venture into confirming Yellen’s 6-months comments, most are open to rate tightening, as long as fundamental data supports it, which in a sense is not that different from Yellen herself.  I think one of the most interesting observations to point out is the fact that there was no fear talking about “rate hike” or “policy tightening” by these Fed officials.  In a sense, this is already a huge improvement as the very mention or discussion on rate hikes show underlying support for such a move.

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Of course, when it comes to the Feds, none other is as respected as the Fed Whisperer himself, Hilsenrath of the WSJ, here’s what he said:

  • Investors glossed over a potentially long-term dovish Fed statement remark regarding forward guidance in focusing on Fed Chair Yellen’s comments about raising short-term rates
  • Points to the passage in the Fed statement noting “Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”
  • In 2016, Fed projects unemployment at 5.4%, GDP near 3% and inflation just below 2%. Level of unemployment would be lower than historic average, and yet officials still target short-term rates at just over 2% at the end of 2016, which is “well below the 4% they consider appropriate for an economy running on all cylinders.”
  • Former Fed officials feel that the Fed has not done a good job explaining why they see rates staying so low for so long
  • Suggests that while “economy might look like it is getting back to normal, beneath the surface it isn’t.”

In conclusion, while analysts aren’t 100% convinced (Hilsenrath) that the U.S. economy will fully recover in 2016, most agree that some sort of policy tightening will take place as early as 2015.  The very fact that there are plenty of speculations in the market and discussions within the FOMC on the timing of rate hikes are likely to keep USD on a firm tone in the coming weeks.  I for one will be looking to BUY USD on dips.

Thanks,

henry-sig

 

 

 

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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