Fed speakers have given mixed messages to the market - UOB

Analysts at UOB Group noted yesterday's comments from Fed speakers.

US: Atlanta Fed's GDP forecast for Q2 at 3.6% on May 9, down from 4.2% on May 4.

Key Quotes:

"St Louis Fed President, James Bullard (non-voter in 2017 FOMC) who was speaking on Panel regarding interest rate policy said that he does not expect the decision to draw down balance sheet will lead to a repeat of the ‘taper tantrum’ because he expects FOMC communications to be better. He thinks the US 1Q GDP was disappointing, and it puts pressure on rest of year for the economy to get back to trend. He also warned that the drop in 10-year yields and inflation expectations after the last rate hike [March 2017] is a cause for concern, noting that continued rate hikes not justified by data. And he repeats his view that the Fed does not need to raise rates any higher. He believed that the low ‘natural’ rate means Fed can keep policy target between 0.75 and 1.00 percent until it is clear that the US economy has shifted gears. 

Meanwhile, Cleveland Fed President Loretta Mester, (nonvoter in 2017 FOMC) who was speaking at Chicago Council on Global Affairs on Monday (08 May) was more hawkish compared to Bullard as she warned against Fed delaying tightening until policy goals fully met. She believes that the Fed has reached US employment goal, nearing inflation goal and she repeats a call for further rate hikes, trimming portfolio this year. She does not expect ‘gradual, predictable’ portfolio reduction would hit US economy."