Saturday May 21, 2016 - 11:04:13 GMT
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Fed Rate Hike Now Imminent
John M. Bland, MBA
Fed Clears The Air
The latest week saw an unusually consistent set of comments by Fed officials. N.Y. Fed President Dudley put the cherry on top Thursday when he cleared the air about current monetary policy. As one of the top three members of the FOMC, he spoke with authority. Dudley said the June 15 is "definitely a live meeting". He also said that markets have been underestimating the chances for a policy tightening. He said he is quite pleased with the current market June and July policy meeting views. Odds for June 15 hike are about 25%, and absent a June tightening, odds are above 60% for a one-shot tightening by July 27.
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Dudley's comments were unambiguous. A rate hike is on the table if upcoming data are not unexpectedly weak. The Fed's intention is to raise rates either in June or July, but it has kept its options open by saying "if conditions warrant". This gives the Fed cover to do nothing if economic data weaken substantially, if financial markets suddenly deteriorate, or if the U.K. Brexit issue becomes a source of market instability. This decision is data-dependent, but the "default setting" is to tighten.
Current Market Conditions
The new decisive posture of the Fed has given the USD strong bid vs. the EUR and JPY. The GBP has been helped by better than expected data this week. The S&P has been trading heavy due to uncertainty about how many rate hikes are in the pipeline. The yield on the 10-yr note has risen this week on the same uncertainties. Traders will now been on data watch for the next several weeks and likely beyond. The week ahead sees the G7 leaders summit in Japan on May 26-27. I don't expect much of great importance to the financial markets to be announced, but there always is a chance.
WEEKLY HIGH IMPACT NEWS:
All Day- flash PMIs
09:00 DE- ZEW Survey
14:00 CA- BOC Rates
14:00 US- New Home Sales
08:00 DE- IFO Survey
09:00 EZ- GDP
14:30 US- EIA Crude
08:30 GB- GDP
12:30 US- Weekly Jobless
12:30 US- Durable Goods Orders
13:45 US- flash Service PMI
14:00 US- Pending Homes Sales
12:30 US- GDP
14:00 US- University of Michigan Survey
Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland
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