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Tim Duy
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Market participants widely expect the Federal Reserve to raise interest rates at the conclusion today’s FOMC meeting. The only real debate surrounding this meeting regards the Fed’s messaging. Central bankers pivoted to a more hawkish stance in recent weeks, and this shift will be reflected in the statement and accompanying Summary of Economic Projections. But will it be modestly or very hawkish, or somewhere in-between? Continued here.... Continue reading
Posted Mar 20, 2018 at Tim Duy's Fed Watch
Market participants widely expect the Federal Reserve to raise interest rates at the conclusion today’s FOMC meeting. The only real debate surrounding this meeting regards the Fed’s messaging. Central bankers pivoted to a more hawkish stance in recent weeks, and this shift will be reflected in the statement and accompanying Summary of Economic Projections. But will it be modestly or very hawkish, or somewhere in-between? Continued here.... Continue reading
Posted Mar 20, 2018 at Tim Duy's Fed Watch
The jobs report gives the Fed cover to retain a gradual rate path. To be sure, the rapid pace of job growth will leave them nervous about an unsustainable pace of growth. But the flat unemployment rate remains consistent with their forecasts. In addition, low wage growth indicates the economy has not pushed past full employment. If inflation remains constrained, the Fed would be pretty much on target for this year. That suggests the three-hike scenario should remain in play. But increased confidence in the outlook and risk management concerns will push up enough “dots” in the next Summary of... Continue reading
Posted Mar 12, 2018 at Tim Duy's Fed Watch
The written testimony accompanying Federal Reserve Chairman Jerome Powell’s visits to Capitol Hill last week left me with more questions than answers. It seems evident that central bankers expect they will need to boost their estimates of appropriate rate hikes either in March of June. It also appears that they would like to make this shift while remaining within the context of the existing policy language of gradualism. That is a tricky needle to thread, and I understand the motivation. Policy makers simply do not want to spark a sell-off in Treasuries. But the past week has left me wondering... Continue reading
Posted Mar 4, 2018 at Tim Duy's Fed Watch
Yesterday I called attention to this line from Federal Reserve Chairman Powell’s testimony: In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis. I interpreted this as a shift in the Fed’s focus. The risks are shifting, hence the new concern about an overheated economy. In contrast, previous iterations of this policy guidance referred to “achieving” and then “sustaining” full employment. Central bankers must view the economy as in a danger zone... Continue reading
Posted Feb 28, 2018 at Tim Duy's Fed Watch
Federal Reserve Chairman Jerome Powell delivered the Fed’s Semiannual Monetary Policy Report Tuesday morning. Powell smoothly and confidently responded to – or deflected – questions as if he were already seasoned in the role of Chair. As to the content of his remarks, they were hawkish. More hawkish than I anticipated and arguably signaled a significant change of focus for the Fed. Continued here... Continue reading
Posted Feb 27, 2018 at Tim Duy's Fed Watch
Thanks - got behind today and missed this.
1 reply
Federal Reserve Chairman Jerome Powell will tackle his first Semiannual Monetary Policy Report to the Congress this week. The expectation is that Powell will by and large reiterate the case for continued gradual tightening of monetary policy. That has come to mean three rate hikes in 2018, although given the data dependence of policy the risk is that three becomes four. Market participants remains nervous, however, that Powell will set a more hawkish tone indicating a sharp acceleration of rate hikes. I think this very unlikely at this juncture. I do think there is room, however, to emphasize that if... Continue reading
Posted Feb 25, 2018 at Tim Duy's Fed Watch
Fed speakers continue to reiterate that policy remains on a gradual path of tightening.So far, the inflation data and brightening economy has more emboldened their commitment to gradual rate hikes than a faster pace of hikes. What about fiscal policy? That train has left the station, but central bankers don’t seem too concerned – yet. Continued here... Continue reading
Posted Feb 22, 2018 at Tim Duy's Fed Watch
The minutes of the January FOMC meeting revealed increasing confidence in the economic outlook. That translated into increased confidence that gradual rate hikes remains the appropriate policy path. Does that mean the central bankers stand poised to raise their “dots” such that the median rate hike projection rises to four hikes? I don’t think so. I read the minutes as wiping away lingering concerns about the inflation outlook and allowing policymakers to coalesce around the existing three hike projection. The risk remains, of course, that conditions remain sufficiently buoyant to raise the rate projection in June or September. More important... Continue reading
Posted Feb 22, 2018 at Tim Duy's Fed Watch
The data flow remains supportive of the Fed’s forecast of sustained moderate growth. A spike in prices, however, drove core CPI inflation to the fastest monthly pace since 2005, again raising fears that the Fed will accelerate the pace of rate hikes. I still think this is premature. To be sure, the risk is that the Fed hikes rates more than the projected three times this year. But Powell & Co. will need more data to support a faster pace of rate hikes. They will not overreact to data that may prove to be nothing more than a flash in... Continue reading
Posted Feb 19, 2018 at Tim Duy's Fed Watch
“So far, I’d say this is small potatoes…” New York Federal Reserve President William Dudley, February 8, 2018 “All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.” Federal Reserve Chairman Ben Bernanke, May 17, 2007 Friday was yet another day of wild swings on Wall Street as market participants continue to... Continue reading
Posted Feb 11, 2018 at Tim Duy's Fed Watch
There are lots of moving pieces right now. So many that few wanted to step in front of last week’s selling on Wall Street. I am going to try to sort out some of these pieces here. The employment report and, most notably, the pop in wages caught analysts off guard. If you were expecting the job market to slow down early this year, you continue to be on the wrong side of the story. Employers added 200k workers to payrolls in January, close to the three-month average of 192k. Curiously, the unemployment rate has held steady for four months... Continue reading
Posted Feb 4, 2018 at Tim Duy's Fed Watch
As anticipated, the Fed left rates unchanged at the conclusion of yesterday’s FOMC meeting. The statement was little changed but the handful of revisions point to continuing rate hikes. The Fed remains on track for three 25bp rate hikes in 2018. For the most part, the turnover at the Fed combined with ongoing solid data has left the remaining doves sidelined. The low inflation warnings of last year were largely a head fake as the Fed was always positioned to continue raising rates as long as there looked to be continuing downward pressure on unemployment. Continued here.... Continue reading
Posted Jan 31, 2018 at Tim Duy's Fed Watch
Last Friday the Bureau of Labor Statistics released a fairly lackluster employment report. In most ways, the story remains the same – steady improvement in the labor market but no signs of overheating in the form of wage growth. The mix will keep the Fed on track for three rate hikes this year, as the consensus policymaker will view this kind of report as a reason to neither accelerate nor slow the pace of tightening. Continued here... Continue reading
Posted Jan 7, 2018 at Tim Duy's Fed Watch
Quick post today as I am still settling back into the swing of things after some downtime during the holidays. Friday morning the Bureau of Labor Statistics delivers us the employment numbers for December. Wall Street anticipates firms added 191k employees, a healthy pace of job growth, while the unemployment rate holds steady at 4.1 percent. The consensus is also looking for wage growth of 0.3 percent for the month, or 2.5 percent year-over-year. Some thoughts on this forecast... Continued here (blog post).... Continue reading
Posted Jan 4, 2018 at Tim Duy's Fed Watch
The Federal Reserve anticipates continued monetary tightening in 2018, as it seeks to match 2017’s pace of interest-rate hikes with another three quarter-point moves. As always, however, that projection depends on actual economic outcomes. With that in mind, here are five questions the Fed will face in 2018 as it charts a course for policy: Continued here on Bloomberg Prophets... Continue reading
Posted Dec 28, 2017 at Tim Duy's Fed Watch
The December FOMC meeting ended largely as anticipated with a quarter point rate hike, making the Fed good on their expectation of three rate hikes for 2017. What about 2018? The Summary of Economic Projections revealed that the median policymaker still anticipates another three rate hikes in 2018. But will they deliver? The answer to that question depends, of course, on the actual evolution of the economy relative to policymaker’s expectations. But at this point, I wouldn’t bet against them on the dovish side. Continued here... Continue reading
Posted Dec 17, 2017 at Tim Duy's Fed Watch
As the Federal Reserve prepares to hike interest rates at this week’s Open-Market Committee meeting, market participants are bidding up short-term rates -- moving toward the Fed expectations of more increases in 2018. That move could continue when the central bank reaffirms its commitment to further tightening next year. Continued here at Bloomberg Prophets... Continue reading
Posted Dec 11, 2017 at Tim Duy's Fed Watch
The FOMC meeting next week is anticipated to end with a rate hike. Indeed, this is for all intents and purpuses already a done deal. The employment report won’t change it. But the employment report could either add or subtract to FOMC concerns that the pace of activity remains sufficient to push the economy toward overheating sooner than later. The consensus forecast reasonably expects an outcome that leans toward the former, with job gains well above that necessary to hold the unemployment rate constant. That outcome would leave the Fed committed to their inflation forecast and hence inclined to maintain... Continue reading
Posted Dec 7, 2017 at Tim Duy's Fed Watch
Thinking about the path of policy next year, this quote from Chicago Federal Reserve President Charles Evans (via the New York Times), seems like an important issue: I think the economy is doing very well. I think it continues to show strength. The second half is looking like very good growth: 2.5 to 3 percent growth. And this is to be measured against our assessment that sustainable growth is more like 1.75 percent. So 2.5 to 3 percent is very strong growth, which should continue to lead to improved labor market activity. Unless something structural improves to increase trend growth,... Continue reading
Posted Dec 6, 2017 at Tim Duy's Fed Watch
The minutes of the Oct. 31-Nov. 1, 2018 FOMC meeting made a bit of a splash with their mixed message. The minutes revealed widespread concern with the weak inflation numbers of the past year. Yet the minutes also showed that committee members were committed to a December rate hike. Damn the torpedoes, full speed ahead! Why the mixed message? Two words: “gradual” and “lags.” Continued here (blog and newsletter)... Continue reading
Posted Nov 26, 2017 at Tim Duy's Fed Watch
Incoming data indicate the US economy retains momentum as 2017 draws to a close, clearing the way for the Fed to hike rates in December. Inflation, however, remains on the soft side and continues to make some FOMC members nervous. That said, the consensus looks set to downplay those concerns amid an environment of solid economic growth and declining unemployment rates. I think it will be a challenge for FOMC members to shift gears to steady policy until growth moderates sufficiently to stabilize unemployment rates. Continued here… Continue reading
Posted Nov 20, 2017 at Tim Duy's Fed Watch
It was supposed to be easy. When the Federal Reserve started hiking the federal funds rate, longer-term interest rates would rise. After all, they were at very low levels, restrained by a low-term premium. The “Greenspan conundrum” of the past two cycles, when long rates failed to respond in line with higher short rates, couldn’t happen a third time in such circumstances. But it didn’t work out that way.... Continued at Bloomberg Prophets... Continue reading
Posted Nov 20, 2017 at Tim Duy's Fed Watch
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At some point every year I sense a need to reset and clarify my baseline views on the economy and monetary policy. This is that time. Continued here... Continue reading
Posted Nov 13, 2017 at Tim Duy's Fed Watch