Tagged: FOMC SEP Dots
Curve AdvisorKeymasterSeptember 17, 2014 at 10:21 amPost count: 612
Lately, everyone is pooh-poohing the dots. But I still think it’s an important part of the rates discussion. In the next week or two, I will do a little more research on the latest September dots and post my new estimates. I also thought it would be good to have a thread where we could post relevant quotes from various FOMC speeches. But below is what I had been using after the June meeting for the 2016 dots. It’s very rough and I could easily have spent more time on it. I would be happy to discuss my reasoning if you disagree. That’s what the forum is all about!
My Dot Assingment for June 2014:
4.25 Charles I. Plosser
4.00 Richard W. Fisher
3.75 Esther L. George
3.50 Jeffrey M. Lacker
3.00 Loretta Mester
3.00 James Bullard
2.75 Jerome H. Powell
2.50 Daniel K. Tarullo
2.50 Dennis P. Lockhart
2.25 John C. Williams
2.25 Eric Rosengren
2.00 Janet L. Yellen, Chair
2.00 William C. Dudley
1.25 Charles L. Evans
1.00 Stanley Fischer, Vice Chairman
0.50 Narayana Kocherlakota
Curve AdvisorKeymasterSeptember 23, 2014 at 1:06 pmPost count: 612
Evans’ speech Wednesday could be interesting. He volunteered that he was the 1.25 2016 dot in March. Any time you can identify a “dovish” dot, that makes placing the FOMC leadership dots a little easier. FWIW, Goldman seems to think the FOMC leadership are the dovish dots 3-6. This is not too different from my claim that the FOMC leadership is in the “dovish half.”
Curve AdvisorKeymasterSeptember 24, 2014 at 10:01 amPost count: 612
This isn’t a bad summary of the previous week’s FOMC statements. http://www.reuters.com/article/2014/09/24/usa-fed-idUSL1N0RJ2QY20140924 No real surprises, but Bullard saying, “A more natural juncture [to remove “considerable time”] would probably be the October meeting,” pretty much lines with with my thoughts.
Dudley’s dovish comment was “I can certainly imagine a scenario where the unemployment rate dips a little bit below what we view as sustainable. That would be the mechanism to actually push inflation back up.” And his comments about a high dollar hurting the economy and pushing down inflation was interesting.
As you can tell, I don’t pay as much attention to the far extremists.
Curve AdvisorKeymasterSeptember 29, 2014 at 2:20 pmPost count: 612
9/29: Evans said today “So appropriate policy being in that regard has a liftoff in the first quarter of 2016.” This confirms he is the other dovish dot. “June is a possibility,” Evans said in a CNBC interview. “I want to be sure we get inflation up to 2 percent.” But he had previously indicated that his projections for inflation were very low for a while, so this is not as bearish as first reported.
Curve AdvisorKeymasterOctober 7, 2014 at 5:57 pmPost count: 612
10/7: George no real surprises: Even though inflation may not be a risk today, the nation’s central bank “must remain vigilant on that front,” “If we continue to wait to see full inflation, I think we risk having to move faster and steeper”
10/8: Kocherlakota: an improving employment picture alone isn’t reason enough for the central bank to boost interest rates. doesn’t see inflation rising back to the Fed’s 2-percent goal until 2018. “This sluggish inflation outlook implies that, at any FOMC meeting held during 2015, inflation would be expected to be below 2 percent over the following two years,” “It would be inappropriate for the FOMC to raise the target range for the fed funds rate at any such meeting.” SEES NO REASON TO DROP `CONSIDERABLE TIME’ PLEDGE. It surprises no one that he is THE low dot.
Curve AdvisorKeymasterOctober 7, 2014 at 6:01 pmPost count: 612
10/8 Dudley: Forecasts for the Federal Reserve to raise interest rates in mid-2015 are “reasonable” “It still is premature to begin to raise interest rates,” “The labor market still has too much slack and the inflation rate is too low.” So what does “reasonable” mean? Because I’m a numbers guy, I want to know… is it 50%? 75%? 25%?
Curve AdvisorKeymasterOctober 10, 2014 at 6:06 pmPost count: 612
10/9: The Fed’s pledge that interest rates will stay low for a “considerable time” could mean anything from two months to one year, Vice Chairman Stanley Fischer said today. “What we think now is that the capital markets have it more or less right but we don’t ourselves know when we’re going to do it… On the basis of our forecasts of the data … it looks like markets more or less have it right – somewhere in the middle of the year.” Well I suppose at the end of Wednesday, the markets were only pricing in 69bps for the end of 2015, so if he thinks the markets have it “more or less right,” then that could be construed as dovish. Or not.
Curve AdvisorKeymasterOctober 10, 2014 at 6:33 pmPost count: 612
10/9 Williams: “I’ve said it often enough that I should probably have a T-shirt, but let me reiterate: The decision to raise rates will be data-driven, not date-driven,” “Based on my current forecast for economic growth, employment, and inflation, it would be appropriate to start raising the fed funds rate sometime in the middle of 2015,” “monetary policy will remain accommodative for some time, because we’re still quite a way from our goals.” “if we were to withdraw accommodation too soon, progress toward our goals could slow or even stall.” For his part, Williams expects an annual pace of real GDP growth around 3% for the second half of this year, and into 2015. He see the unemployment rate reaching 5.2%, his estimate for the natural unemployment rate, by end of 2015. So he sounds optimistic on policy, but on the margin a touch dovish on policy.
Curve AdvisorKeymasterNovember 5, 2014 at 6:25 pmPost count: 612
11/4: Bullard: St. Louis Federal Reserve Bank President James Bullard Tuesday said the U.S. central bank does not need to consider additional monetary stimulus right now as the economy is better positioned for growth than it has been in quite awhile.
I had written a few weeks back that you should expect Bullard to do a 180 in the next few months. I was not expecting it to happen in a few WEEKS!
Curve AdvisorKeymasterNovember 11, 2014 at 10:52 amPost count: 612
11/10: Rosengren: While Mr. Rosengren didn’t say when he expects the Fed to raise short-term interest rates from what are now near-zero levels, he warned that falling energy and commodity prices, tepid wage gains and a resurgent dollar could make it difficult to see inflation rise toward the 2% mark central bankers have defined as their official target. He said actual levels of inflation are likely to be “well below the target” for a while to come.
Curve AdvisorKeymasterNovember 13, 2014 at 3:58 pmPost count: 612
11/12: DUDLEY: While there’s been considerable improvement in the U.S. economy, “it still is premature to begin to raise interest rates–there remains slack in the labor market and the inflation rate is still too low,” Mr. Dudley said.
The economy’s current and expected state “argues for patience with respect to the timing of liftoff of the federal funds rate and the beginning of the normalization of monetary policy,” Mr. Dudley said. “If all goes well, I anticipate that we will begin to raise short-term rates sometime next year,” he added.
“Monetary policy needs to be very accommodative” to help the economy heal further, and any push to raise rates too early could be very damaging for growth, Mr. Dudley said. He added, “given the still high level of long-term unemployment, there could be a significant benefit to allowing the economy to run ‘slightly hot’ for a while in order to get these people employed again.”
Curve AdvisorKeymasterDecember 1, 2014 at 2:45 pmPost count: 612
12/1: Dudley: The sharp drop in oil prices will help boost consumer spending and underpin an economy that still requires patience before interest rates are increased. “It is still premature to begin to raise interest rates” “When interest rates are at the zero lower bound, the risks of tightening a bit too early are likely to be considerably greater than the risks of tightening a bit too late.”
Curve AdvisorKeymasterDecember 3, 2014 at 11:19 amPost count: 612
12/2: FISCHER: “You saw in the minutes of last meeting there was some discussion of that [removing ‘considerable’], and it’s clear we are closer to getting rid of that than we were a few months ago,” “It wouldn’t be appropriate for me to give you a guess as to what my colleagues and I are going to do at the next meeting,” he said. “You may assume we’re not going to suddenly stop that and not say anything, just take it out and leave no guidance” on interest rates, he said.
Curve AdvisorKeymasterDecember 9, 2014 at 10:16 pmPost count: 612
12/8: Williams: “Personally, on my own, I think ‘considerable time’ captures about as best you can with two words, and maybe actually in my view maybe 20 words, (the FOMC consensus sentiment) about the appropriate time for lift-off.”
Curve AdvisorKeymasterDecember 11, 2014 at 7:19 pmPost count: 612
Here is Carl Riccadonna’s take on the Hawk-Dove scale (-2=dovish to +2=hawkish)
Richard W. Fisher +2
Charles I. Plosser +2
James Bullard +1
Loretta Mester +1
Esther L. George +1
Jeffrey M. Lacker +1
Lael Brainard 0
Jerome H. Powell 0
Daniel K. Tarullo 0
Dennis P. Lockhart -1
John C. Williams -1
Stanley Fischer -1
Charles L. Evans -2
Eric Rosengren -2
William C. Dudley -2
Janet L. Yellen, Chair -2
Narayana Kocherlakota -2
This seems fairly reasonable. I don’t think anything is “wrong” (may just be rounding).
Curve AdvisorKeymasterDecember 19, 2014 at 9:05 pmPost count: 612
12/19: WILLIAMS (leans dovish): “June 2015 seems like a reasonable starting point for thinking about when liftoff could happen,” “Patient” “was a natural progression as we begin moving closer to normalizing monetary policy,” Policy makers are “getting closer to consider normalizing policy and I consider it a bridge.”
Curve AdvisorKeymasterJanuary 3, 2015 at 9:40 pmPost count: 612
1/3: One dovish and one hawkish comment today:
ROSENGREN: “I believe the continued very low core inflation and wage growth numbers provide ample justification for patience,” Rosengren said. “A patient approach to policy is prudent until we can more confidently expect that inflation will return to the Fed’s 2 percent target over the next several years.”
MESTER: “I do believe that inflation will gradually move back to our target, so I could imagine interest rates going up in the first half of the year.”
Curve AdvisorKeymasterJanuary 5, 2015 at 4:06 pmPost count: 612
1/5: WILLIAMS: “I see no reason whatsoever to rush to tightening,” Williams told reporters today in Boston. “This is a U.S. economy that although doing a lot better, still needs monetary accommodation for above-trend growth.” He added that he doesn’t rule out tightening later in the year. Williams, who is a voting member of the FOMC this year, reiterated his view that mid-2015 was a reasonable starting point to think about liftoff.
“My own view is the pace of tightening will be pretty gradual over the next few years once we start liftoff,” he said. He also anticipated divergence in monetary policies between the Fed, the Bank of Japan and the ECB will “create some turbulence” in financial markets. he would like to see more evidence that wages are ticking up, he said. The fact that current rates are close to zero provides another argument for patience, he said. “We know that being at the zero lower bound complicates monetary policy,” he said. “You don’t want to be premature when you remove monetary stimulus because you’ll end up regretting that if things work out worse than you hoped.”
Williams also agreed with Yellen’s view that the FOMC should avoid raising rates at a “measured pace,” as it did at every meeting from June 2004 through June 2006. “That language very quickly became something locking us into 25 basis-point increases at every meeting, and in fact you don’t want to be locked in,” he said.
Curve AdvisorKeymasterJanuary 6, 2015 at 8:55 amPost count: 612
Here is ITC’s take on the FOMC hawk-dove scale.
Name Position Voter? Reputation
J Lacker Richmond Fed Y Hawk
E George Kansas City N Hawk
R Fisher Dallas Fed N Hawk
C Plosser Philly Fed N Hawk
J Powell Fed Board Y Leaning Hawk
J Bullard St. Louis Fed N Leaning Hawk
L Mester Cleveland Fed N Leaning Hawk
D Tarullo Fed Board Y Middle
S Fischer Fed V. Chair Y Middle
D Lockhart Atlanta Fed Y Leaning Dove
J Williams San Fran Fed Y Leaning Dove
J Yellen FOMC Chair Y Leaning Dove
L Brainard Fed Board Y Leaning Dove
C Evans Chicago Fed Y Dove
W Dudley FOMC V.Chair Y Dove
N Kocherlakota Minneapolis Fe N Dove
E Rosengren Boston Fed N Dove
Curve AdvisorKeymasterJanuary 8, 2015 at 8:11 amPost count: 612
1/7: EVANS (uber-dove, but he made some strong comments): “I don’t think we should be in a hurry to increase interest rates,” Later in the presentation Evans said such a move to tighten too soon would be a “catastrophe.” Wage growth consistent with the Fed reaching its objective for inflation would be 3.5 percent to 4 percent, he said.
Mr. Evans said only one member of the committee advocates for more accomodative policy than does he (presumably Kocherlakota), so that makes him the #2 dove.
Curve AdvisorKeymasterJanuary 8, 2015 at 8:03 pmPost count: 612
1/7: ROSENGREN (dovish, but made comments about low rates): The Federal Reserve can likely be patient not only on the timing of the first interest rate hike but on the series of subsequent hikes, adding he doesn’t expect the coming policy tightening to appreciably slow the U.S. economy. Boston Fed President Eric Rosengren, speaking in Wisconsin, did not estimate when the U.S. central bank would raise rates for the first time in nearly a decade. But he said that 10-year U.S. Treasuries, which are yielding about 2 percent, were “quite low” given the Fed aims to hit a 2 percent inflation goal.
Curve AdvisorKeymasterJanuary 9, 2015 at 2:20 pmPost count: 612
1/9: LACKER (bear, seems strangely cautious): Mr. Lacker, a voter this year on the policy-setting Federal Open Market Committee who has been critical about the Fed’s unconventional policy measures, was cautious not to commit to any specific timeline for interest rate increases. ”The truth is nobody knows yet,” he told a conference sponsored by the Virginia Bankers Association and the Virginia Chamber of Commerce. “There is no pre-set timetable for raising rates,” Mr. Lacker said. “The FOMC’s actions genuinely will depend on the economic data available at the time. So I cannot tell you when and, more importantly, how rapidly our rate target will rise.” Mr. Lacker said he sees the U.S. economy expanding between 2.5% and 3.0% this year but “should not completely dismiss… a more temperate scenario” of growth closer to 2.25%.
“In past episodes of large energy price movements, we have seen some bleed through into core inflation, and that seems to be happening again,” Mr. Lacker said. Core inflation excludes food and energy prices. “As a result, inflation trends may be a bit more difficult to discern in coming months. Nonetheless, I expect inflation to move tolerably close to the FOMC’s 2% target after the fall in energy prices has played out.”
Asked about a decline in market-based inflation expectations to a 14-year low, Mr. Lacker said it “has definitely got my notice.”
However, he took comfort in measures of expectations from consumer surveys, which he described as rock steady. ”I don’t see the [shift] as necessarily signaling an unanchoring of inflation expectations,” Mr. Lacker told reporters after his speech.
Curve AdvisorKeymasterJanuary 9, 2015 at 2:30 pmPost count: 612
1/9 LOCKHART (lean dovish): Federal Reserve Bank of Atlanta President Dennis Lockhart said today’s strong jobs report is no reason to speed up the timing of an interest-rate increase that he sees occurring in the middle of the year or later. “I don’t see a reason yet to accelerate my assumption of when a policy move might be appropriate,” Lockhart, who votes on monetary policy this year, said in a telephone interview from Atlanta. At the same time, “clearly this added to accumulated progress with very healthy numbers.” “The report confirms my sense of how the economy is progressing,” said Lockhart, 67, who has been a consistent supporter of record stimulus. “If the committee is to err on the side of being a little late as viewed by history writers or maybe a little early, I prefer to take the risk of being a little bit late.”
Curve AdvisorKeymasterJanuary 12, 2015 at 12:15 pmPost count: 612
1/12 LOCKHART: “I believe the first action to raise interest rates will in all likelihood be justified by the middle of the year… If the early months of this year bring mixed news on the economy, the risk manager in me will lean to preferring a later date for the first policy move to an earlier one.”
Curve AdvisorKeymasterJanuary 13, 2015 at 2:04 pmPost count: 612
1/12: WILLIAMS: “I would expect by June that the argument pro and con for lifting off rates will be probably a close call” assuming that inflation doesn’t fall further, Williams said today in a telephone interview from his San Francisco office. “It’s a reasonable guess.”
Curve AdvisorKeymasterJanuary 20, 2015 at 1:05 pmPost count: 612
1/20: BULLARD: “I still think we should get off zero (interest rates). The kinds of things we’re observing now, it is not the constellation of data that would be consistent with a zero policy rate. I think it is important to get started and to start normalizing policy. Even once we start to normalize, interest rates would still be extremely low. We’re talking about levels of 50 basis points or 75 basis points. That is still extremely low and that would still be putting upward pressure on inflation even if we did that. So I’d like to get going. I don’t think we can any longer rationalize a zero interest rate policy. What I would be willing to do is adjust the frequency of rate hikes and adjust the pace of the normalization process in reaction to data, so that if inflation indeed does not behave the way we think it will, we can pause in that process and reassess at that point. I’d like to make the pace of tightening be more data dependent than it would have been in 2004 to 2006.”
Curve AdvisorKeymasterFebruary 3, 2015 at 12:28 pmPost count: 612
2/3 Bullard: Fed’s Bullard Shrugs Off Inflation Expectations Drop, “international” nod. As I mentioned in this weekend’s CA write-up, Bullard probably did not argue for the inclusion of these things in the statement. That means several/many others did – and I would venture to guess that it was the more important members of the FOMC (Yellen, Fischer, and/or Dudley).
Curve AdvisorKeymasterFebruary 9, 2015 at 4:35 pmPost count: 612
2/6 Lockhart: *LOCKHART IS STILL COMFORTABLE WITH LIFTOFF MID-2015 OR LATER
*LOCKHART: ALL RATE RISE OPTIONS FROM JUNE ONWARD SHOULD BE OPEN
Lockhart says that the weakness of inflation and wages is a concern, and that firming of inflation readings will give him confidence that the outlook on which monetary policy decisions will swing remains realistic.
Curve AdvisorKeymasterApril 6, 2015 at 9:57 pmPost count: 612
Yellen gave a speech on March 27 that shed a lot of light on her thinking. If you trade rates in the US, it’s a very good read (as far as economic speeches go), so you should check it out when you have time: http://www.federalreserve.gov/newsevents/speech/yellen20150327a.htm
Forum members can read delayed full excerpts in the “Excerpts” section of the web site. Below is the Cliff’s Notes version that I wrote after the speech:
Yellen has not offered much insight into her thinking in many of her public appearances. It was refreshing to get a summary of her current thinking in her speech at the “New Normal Monetary Policy” conference on Friday.
• What is “several” or “few”? She used those terms interchangeably (once each) in the phrase “the course of monetary policy over the next several years.” Google says “several” is “more than two.” Common usage implies a “few” is three or more but not many (but could be as low as 2). The reason this is important is that she sees the normalization process taking a long time, even after it gets started. The FOMC members have been emphasizing the trajectory of monetary policy over the exact liftoff date in recent months. It’s hard to look into the crystal ball that far, but the preliminary plan seems to be to drag the hiking process out further than the markets are currently anticipating. This reinforces the value in owning flies further out the curve.
• Right now, she cares more about the labor market than inflation. This is particularly interesting because there are many central banks that only have an inflation mandate. “A substantial body of theory, informed by considerable historical evidence, suggests that inflation will eventually begin to rise as resource utilization continues to tighten. It is largely for this reason that a significant pickup in incoming readings on core inflation will not be a precondition for me to judge that an initial increase in the federal funds rate would be warranted.” This is her explanation as to why she is not requiring a pick-up in inflation readings before hiking. She assumes that as we get close to full employment, we will get inflation. I am not sure this is the case. A nation full of mortgage-brokers-turned-burger-flippers doesn’t have to cause inflation. However, some of this effect should get picked up in in secondary stats like discouraged workers and labor participation. But it’s highly unusual for a senior central banker to push the actual inflation data to the side, in favor of secondary indicators for that data.
• She does not seem to care much about the lack of wage inflation either. “We can never be sure what growth rate of nominal wages is consistent with stable consumer price inflation, and this uncertainty limits the usefulness of wage trends as an indicator of the Fed’s progress in achieving its inflation objective.” So even without wage inflation, she may hike.
• She still thinks there is “appreciable slack” in the labor market. This makes each payroll report even more important. We have one on Friday.
• She is open to the possibly that she may have to ease after hiking. I thought it was strange that Fischer mentioned TWICE in his speech on Monday that the Fed is prepared to lower interest rates after liftoff. So Yellen reinforcing that message can’t be a coincidence. I am inclined to think they believe they may make a few “borderline” hikes here or there (in particular the first hike), within the framework of their gradual trajectory. Yellen did say, “A modest increase in the federal funds rate would be highly unlikely to halt this progress [in reducing labor market slack].” It feels like they want to nudge up rates to see if they can actually control the lower bound of their rate range. This makes some sense, as you don’t want to give the economy more gas, only to find out at some critical juncture that the brakes don’t work. So maybe they are not as concerned about US 1937 or Japan 2000 (where central banks mistakenly hiked and had to backtrack), and they feel the need to explain why they may have to go back to zero.
• One of her (main) paradigms for looking at rates is the equilibrium real FF rate. She devotes a lot of discussion to equilibrium real rates (especially in the footnotes). She still thinks the equilibrium real rate is still close to zero (the economy has not fully recovered from the Recession) and some current assumptions would get you close to a zero nominal FF rate now, even using the Taylor Rule.
• She does not have a fixed idea of key economic benchmarks. “We cannot be certain about the underlying strength of the expansion, the maximum level of employment consistent with price stability, or the longer-run level of interest rates consistent with maximum employment.” I’m not sure if she is just saying this to get Congress off her back. If data is uncertain, no one can impose a (rule-based) target. If this comment is not politically motivated, I appreciate the honesty and it is good she is keeping an open mind. But this makes trying to anticipate her next move much more difficult. I feel like Han Solo listening to Obi Wan talk about using the “Force” to guide you. I’m not sure she if is a Jedi though.
The three big trading points from the speech are:
• Be wary of the first hike timing. We are “data dependent” but it doesn’t sound like she knows until she sees it. It’s going to be pretty hard to have any kind of competitive advantage vs the markets in “getting inside her mind” when there are tons of people who know her better.
• I hate flies in the back reds and front greens. Right now, the peak of the fly curve is in the back reds and front greens. In Yellen’s “Special Risks and Other Considerations,” she mentions the Primary Dealer’s survey in late January that showed that the markets believed there was a 20% probability that after liftoff, the FF rate would fall back to zero before late 2017. So there is a 20% chance the flies in the back reds to front greens will be negative within two years! Before you start piling into any of those high flies based on historicals from the last hiking cycle, factor that in. Unfortunately, selling the flies outright is not a good trade right now – especially from the current levels.
• The hiking pace will be slow, and could go on for “several” years. It’s possible this could change based on the data, but I would think in a recovery, equilibrium real FF rates would be slow-moving. This would give support to the idea that the normalization process could be long. Building a position in the flies centered in the back greens (since it is so low relatively) and out makes sense. Relative plays in the golds vs purples at zero and below also makes sense.
Curve AdvisorKeymasterApril 7, 2015 at 7:18 pmPost count: 612
4/6: Dudley: Federal Reserve Bank of New York President William C. Dudley said the path of interest-rate increases is likely to be “shallow” once the Fed starts to tighten, and recent economic weakness probably won’t persist.
The timing of the first rate increase since 2006 “will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated,” Dudley said in a speech Monday in Newark, New Jersey. “I anticipate that the path will be relatively shallow” as “headwinds in the aftermath of the financial crisis are still in evidence.”
Curve AdvisorKeymasterFebruary 16, 2017 at 9:34 pmPost count: 612
There used to be a time when I thought the dots were more important. However, 2016 exemplifies why the dots may not be *that* important, as the FOMC projected 4 hikes and only ended up doing 1 (barely, since it was the last meeting of the year).
I do think the dots are still important, because these are the people who set the rates. Their projections may not be very accurate several years out. However, if you take an extreme case and asked them for a dot for the next meeting, that projection will be 100% correct, because they set the rates. So the closer the time frame, the more accurate the protections will be.
One thing to note is that many of the FOMC members have some kind of economic background. So they may be more dependent on economic models and less on other factors that could affect the markets. The Brexit vote occurred after the June FOMC meeting and could have been anticipated as a cause to hold off on a hike. However, very few members would have incorporated that as a risk to hiking at the beginning of last year. I’m not saying they are at fault, as many people may not have factored it in. They may look a little bit ahead (in that they held off hiking in June), but perhaps not as far ahead as they could.
So when you look at the dots as compared to the markets, try to understand why there is a difference. In other words, why would there be a divergence between the economic models and the economy. You can expect a larger difference the further out you go.
I’ll answer your other question tomorrow.
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