Politicians have long been derided for not giving a straight answer when asked a question. When I did media training to prepare for appearances on television or the radio, I was taught how to duck and dive those questions you didn’t want to answer. “Never accept the premise of the question” and then pivot to what you want to talk about. Practicing it on friends caused them to first stop asking me questions and then stop talking to me altogether. There is no doubt that Janet Yellen is also well versed in these dark arts of the communications world. It makes press conferences with her an incredibly dull affair though; last week’s was as painful as root canal surgery.
If you are able to accurately estimate how long a “considerable time” is, then congratulations – you are a member of Federal Open Markets Committee. Yellen would not be drawn at what the phrase meant. So much so in fact, that the market disregarded the statement as useless. We were correct in our assessment that the words would remain within the statement. We entered the press conference noting that “considerable time” were the most important words in the market’s assessment of the Federal Reserve’s monetary policy outlook. There are a different two words now; “data dependent”.
The unemployment landscape in the United States remains supportive of the hawks on the FOMC. The jobless rate – despite a poor payrolls number at the beginning of the month – continues to drift lower. We can happily and easily expect a move below the 6.0% threshold within the next quarter but inflation is a different matter. The Federal Reserve’s latest economic projections have shown that inflationary pressures in the US will remain below the central bank’s 2% target.
Despite this, the dot charts – an anonymous survey of FOMC members’ rate expectations by the end of 2016 have crept higher. By the end of 2015 rates are expected to be around 1.375% in the US, up from 1.25% at the June meeting. The average for 2016 shifted to 2.68% from 2.53% in June. Calculating and allocating that back, that would suggest a 25bps increase as early as April in the US.
There is a definite risk that the Federal Reserve could meet this very early target were the improvement in the US jobs market to pick up definitively in Q4. I would be surprised if the Federal Reserve beat the Bank of England to the punch though.
This week’s data calendar is dominated by speeches from FOMC members after a few weeks of almost silence from the Governors of the regional Federal Reserves. Members Dudley, Bullard, Mester, Evans, Lockhart and Powell are due to speak publically this week as well as Members Kocherlakota and George twice respectively. As we highlighted months ago, we can have months and months of strong US data but if the Federal Reserve isn’t talking about it then those months are worthless.
We would expect the broad USD strength of recent weeks to continue in the upcoming sessions with presses evident in USDJPY, USDCAD and the commodity complex.