Hawkish Fed Communications Signal Possible Rate Hike | Macro Minutes

  • Thursday, May 19, 2016

Welcome to Prattle’s weekly “Macro Minutes.” Each week, we analyze the most important communications from a specific region and provide insight based on our quantitative analysis of central banks.

5.19.16 Prattle Infographic_N America

Yesterday’s Fed minutes, which we analyzed in a special blog post, were a key aspect of understanding the Fed’s policy moves in the coming months. The second key indicator of future policy decisions is the upcoming speeches by regional Fed presidents, the first of which was delivered today by William Dudley.

Although the Fed is currently trending neutral, rising sentiment in both the minutes and individual speeches indicates a June rate hike is certainly a possibility. Dudley’s speech today was comparatively his most hawkish in months. Despite his recent dovish sentiment, the residual score (the difference between the document score and the speaker’s average score) of the speech was a somewhat hawkish 0.41.

DudleyTrendMay19

The minutes and several recent speeches, including Dudley’s, have suggested that the market is not pricing in the correct number of rate hikes for the year.

The bottom line: although most signs point toward a June rate hike, there are many factors to be determined by incoming data that could skew the Fed’s decision making process. We expect that Fed speeches over the coming weeks will emphasize the possibility of a move to allow markets to price in an increased chance of a rate hike, thereby leaving all policy options open to the FOMC in the June meeting.

The Prattle Team

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