FED is expecting rate hikes

In a speech Friday, Boston Fed President Eric Rosengren, who has long been viewed as one of the board’s most dovish members, said: “A reasonable case can be made for continuing to pursue a gradual normalization of monetary policy.” This information combined with both actions from JCB and ECB posted huge threats to stock market where we saw more than 2% down of the market. Fed Governor Lael Brainard’s remarks slated for Monday afternoon will be watched closely.

An about-face by Ms. Brainard, who typically has been dovish, would not only raise eyebrows but also could be “an important opportunity for the Fed to raise market expectations” ahead of the September meeting, said Peter Hooper, chief economist at Deutsche Bank Securities. A hawkish speech from her “would carry a lot of credibility,” he added.

In the run-up, here’s a review of some of the most important Fed comments since Chair Janet Yellen last spoke. As you can see from this list — which goes chronologically, but leads with this year’s voters — there’s a significant divergence of views.

Janet Yellen

Chair

Speech: 8/26

Quote: “The case for an increase in the federal funds rate has strengthened in recent months.” Many economists saw this as a sign that Yellen views a rate increase as being on the horizon, though she didn’t explicitly signal that one was coming in September.

Jerome Powell

Governor

Speech: 8/26

Quote: Powell said that “we can afford to be patient. But when we see progress toward 2 percent inflation and a tightening labor market, and growth strong enough to support all that, we should take the opportunity” to hike.

Stanley Fischer

Vice Chairman

Speech: 8/30

Quote:  Asked on CNBC on Aug. 26 whether Fed watchers should be looking for a move in September, and possibly for two hikes this year, Fischer said, “What the chair said today was consistent with answering ‘yes’ to both of your questions.” He wasn’t asked about September during an Aug. 30 interview, but he didn’t voluntarily walk the comment back, either.

Eric Rosengren

Boston Fed President

Speech: 8/31, 9/9

Quote: “Modest increases in wages and salaries seem to me consistent with tightness in labor markets beginning to appear more strongly in the wage data,” and “a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery,” Rosengren said in Quincy, Massachusetts, on Sept. 9. His comments were broadly hawkish, favoring an increase sooner rather than later.

Loretta Mester

Cleveland Fed President

Speech: 9/1

Quote: Mester said “a gradual upward path of interest rates” is consistent with her outlook, based on incoming economic data. “If you have a forecast and inflation is moving up to your target and you’re at full employment, then it seems like a gradual increase from a very low interest rate is pretty compelling to me.”

Daniel Tarullo

Governor

Speech: 9/9

Quote:  “I wouldn’t foreclose that possibility,” Tarullo said on CNBC, when asked about a 2016 rate increase. “It’s important for all of us, in going into each meeting, to remain open to the possibility that momentum has changed, that expectations have changed, and thus for us to change our own views.” Even so, he didn’t sound that optimistic about the near term, saying “what is optimal right now is to look to see actual evidence that the inflation rate would continue to go up and would be sustained at around the target.”

In conclusion, governors are expressing the willingness to increase rat in this month. The switch from dovish to hawkish in the Fed party seems forming an agreement to reach details on actual rate hikes in this year. 

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