Fed still reluctant to explicitly signal September rate hike - BTMU

Analysts at Bank of Tokyo Mitsubishi explained that the hawkish policy signal sent by Fed Chair Yellen has been reinforced by comments from Fed Vice Chair Fischer who stated that her comments at Jackson Hole were consistent with the Fed potentially resuming rate hikes as soon as at their next meeting on the 21st September, and also possibly following up by raising rates again later this year.

Key Quotes:

"In an earlier speech Fed Vice Chair Fischer had similarly emphasized that the Fed is “close to our targets” providing justification for further monetary tightening. There has clearly been a unified effort by the core of the FOMC in recent weeks to guide the market to price in a higher probability of a rate hike at their upcoming meeting.

Fed Vice Chair Dudley’s earlier comments that the market was “absolutely” getting too complacent over the likelihood of further rate hikes was a clear wake up call. He added as well that the Fed “is getting closer to the day we’re going to have to snug up interest rates a little bit” and viewed a September hike as “possible” depending on the incoming economic data flow."

"The Fed still prefers to emphasize that the timing of the next rate hike remains data dependent rather than providing a more explicit signal that it plans to raise rates this month. The Fed’s reluctance to commit to a specific point in time likely stems in part from the failure to follow through with the well signalled rate hike planned for the June FOMC meeting. On the 27th May Fed Chair Yellen stated clearly that rates would “probably rise in the coming months” but was forced to drop the signal just ten days later following the release of the significantly weaker than expected non-farm payrolls report for May when she merely stated rate hikes are “likely to be appropriate”."