Measured Fedspeak Obscures Rate Path | Macro Minutes

  • Thursday, August 18, 2016

With Jackson Hole in sight, Fed communications maintained the status quo this week.

8.17.16 Prattle infographic_Fed 3.41.01 PM

John Williams, President of the San Francisco Fed, talked about r* (the equilibrium funds rate) and alluded to a less hawkish policy stance in a paper/policy note that was fairly neutral in comparison to his previous communications (0.13**).

NY Fed President William Dudley, on the other hand, adopted a far more hawkish tone than usual in his interview*** on Tuesday (residual 1.75).

Atlanta Fed’s Dennis Lockhart kept up the theme of diverse sentiment, emphasizing economic weaknesses but espousing a desire to look through negative shocks in Q2 in his generally dovish speech (residual -0.96).

Scoring just slightly dovish (residual -0.15), Jim Bullard developed a framework for factoring in economic regimes when designing monetary policy. While Bullard remains dovish, his speech made it clear that regimes could switch at any time–and that different regimes require different approaches.

The minutes were this week’s biggest market mover. With a residual score of -0.07 and trend not moving markedly upward, a September hike appears unlikely. December still seems possible…but it’s far from a sure thing.

The bottom line: while the tone of Fed communications this week was varied, the mood was quite neutral and gave no evidence of an impending hike. If a September hike is at all possible, we’ll find out next week at Jackson Hole.

The Signal Team

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** Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications.
***Although we normally only score interviews on an ad hoc basis, they have become Dudley’s preferred means of communication, so we have included this interview score.