2 Dec 2014
Key Fed members firm up their outlook for rates – RBS
FXStreet (Barcelona) - Greg Gibbs, FX Trading Strategist at RBS, shares the key points from the statements made by Vice Chair Fischer and New York Fed President Dudley.
Key Quotes
“Perhaps the two most important Fed members after Chair Yellen spoke on Monday, Vice Chair Fischer and New York Fed President Dudley. Both permanent FOMC members at the core of the decision making process, Fischer probably just to the hawkish side of Yellen, Dudley a dove along with Yellen, seen as her close ally.”
“Dudley has mostly aimed his remarks in the past at discouraging the market from anticipating policy tightening any time soon, so it is significant that he emphasised in this speech that expectations for the “liftoff will occur around mid-2015” seem reasonable.”
“Dudley expressed more confidence that the recovery underway is sustainable, highlighting that the headwinds since the 2008 crisis have eased considerably and that energy price falls were a net positive for the US and global economy.”
“He did note some restraints to faster than normal growth and expressed his view that when rates are near the zero bound it is better to risk delaying policy hikes rather than risk tightening too soon. But he also highlighted the dangers of tightening too slow as in the 2004-07 period. He highlighted that the response of financial markets to policy tightening (i.e. the dollar, equities, bond yields, mortgage rates, credit spreads and credit availability) will be the key determinant in the pace of policy tightening.”
“Considering the fact that the ECB and BoJ have recently enhanced monetary policy easing, it is likely that the US dollar will rise significantly on even gradual Fed rate hikes and the approach of lift-off. So it may be the case that a stronger USD is a significant factor in slowing the pace of policy tightening over the year or two ahead.”
Key Quotes
“Perhaps the two most important Fed members after Chair Yellen spoke on Monday, Vice Chair Fischer and New York Fed President Dudley. Both permanent FOMC members at the core of the decision making process, Fischer probably just to the hawkish side of Yellen, Dudley a dove along with Yellen, seen as her close ally.”
“Dudley has mostly aimed his remarks in the past at discouraging the market from anticipating policy tightening any time soon, so it is significant that he emphasised in this speech that expectations for the “liftoff will occur around mid-2015” seem reasonable.”
“Dudley expressed more confidence that the recovery underway is sustainable, highlighting that the headwinds since the 2008 crisis have eased considerably and that energy price falls were a net positive for the US and global economy.”
“He did note some restraints to faster than normal growth and expressed his view that when rates are near the zero bound it is better to risk delaying policy hikes rather than risk tightening too soon. But he also highlighted the dangers of tightening too slow as in the 2004-07 period. He highlighted that the response of financial markets to policy tightening (i.e. the dollar, equities, bond yields, mortgage rates, credit spreads and credit availability) will be the key determinant in the pace of policy tightening.”
“Considering the fact that the ECB and BoJ have recently enhanced monetary policy easing, it is likely that the US dollar will rise significantly on even gradual Fed rate hikes and the approach of lift-off. So it may be the case that a stronger USD is a significant factor in slowing the pace of policy tightening over the year or two ahead.”