Friday October 14, 2016 - 22:27:37 GMT
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Fed Policy Back In Play Once Again
John M. Bland, MBA
Fed Policy Resolve Softening?
The latest week saw the release of Meeting Minutes for the September 14 FOMC Conference. From my perspective, policy Minutes were a jumble. I had been expecting a clear tightening bias and the central bank seemed to be backing away modestly from its previous aggressive hawkish posture vis-a-vis a December rate hike. One thing that markets do not focus on much these days is that the U.S. central bank has a unique twin policy mandate. It is charged with maintaining full-employment and managing inflation.
Several months ago Chair Yellen made an in-course change in the primary focus of policy to boosting inflation rather than employment. It appears that many either do not realize or accept that the Fed policy focus now is boosting inflation. I noted in the Minutes and in a speech earlier in the day by N.Y. Fed President Dudley that the bank is worried that it continues to miss its inflation target (2.00% Core PCE Deflator). A rate hike in December is the preferred action of the central bank. Such a move is still POSSIBLE, but it is not a done deal, especially if future data remain mixed.
Current Market Conditions
Following the Minutes, the yield on the 10-yr note eased significantly. On the other hand, Fed Fund Futures odds on a December rate hike remain at a relatively high 66%. Sentiment about the future course of Fed policy tends to have a stronger influence on trading than the actual policy change itself. Markets have been fretting over a minor 25bp prospective increase in the Fed Funds rate for nearly a year. Past history indicates that minimal changes in Fed Funds typically do not impact financial markets for more than an hour or so. An 25bp increase in the near zero funds target would see only a short-lived market reaction. Otherwise, markets appear to have thinned somewhat since the GBP "flash crash" a week ago.
WEEKLY HIGH IMPACT NEWS:
17-Oct Mon
09:30 EZ- final HICP
13:15 US- Industrial Production
18-Oct Tue
08:30 GB- CPI
12:30 US- CPI
19-Oct Wed
00:30 AU- Employment
02:00 CN- GDP
08:30 GB- Employment
12:30 US- Housing Starts/Permits
14:00 CA- BOC Policy Decision
14:30 US- EIA Crude
18:00 US- Beige Book
20-Oct Thu
08:30 GB- Retail Sales
11:45 EZ- ECB Decision
12:30 US- Philly Fed
12:30 US- Weekly Jobless
14:00 US- Existing Homes Sales
21-Oct Fri
12:30 CA- CPI
12:30 CA- Retail Sales
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
co-founder
www.global-view.com
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