Change of Narrative
Ian Reynolds
Bank FX currency & prop trader. Limit Up ! traders newsletter. Co-Founder Feasly, property development feasibility in The Cloud
FED Changes Narrative?
A number of FED speakers were on the wires this week with a mixture of rhetoric, but a clear change of narrative.
New York Fed President John Williams says monetary policy is “the most restrictive in 25 years” Nevertheless, “I expect it will be appropriate to maintain a restrictive stance for quite some time”
Federal Reserve Board Governor Christopher Waller said he was "increasingly confident" that policy is currently well positioned to slow the economy and get inflation back to 2% target.
Waller added that should data show disinflation continuing for several more months, the Fed "could then start lowering the policy rate just because inflation's lower."
Other Fed officials chimed with Waller. New York Fed chief John Williams said long-term inflation expectations were anchored, reassuring and "remarkably stable".?
Chicago Fed President Austan Goolsbee was more colourful in insisting there were risks in keeping rates too high for too long - due to the lags in policy taking effect.?
"Anybody who cooks a turkey knows that you got to pull it out of the oven before it's to the point where you want it to be, because it's going to have residual heat."
Only Fed governor Michelle Bowman seemed to hold up the side of the hawks, saying she still expects one more rate rise.
Chair Powell tried to push back against market pricing of notable rate cuts next year noting “it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.” He added: “We are prepared to tighten policy further if it becomes appropriate to do so.”
However from January, the voting members of the FED change
In come?
Out go
Fed Chair Jerome Powell speaks on economy and entrepreneurship at Spelman College —1st Dec
Watch Powell at his most relaxed, without awkward questions from seasoned financial journalists, give a forthright and honest view of the US economy and at 27 minutes reiterating his view on unsustainable fiscal debt, without seeming to do so.
The FED needs to own the narrative otherwise they are surplus to requirements
Inflation
The change of narrative reflects the improvement in inflation , whilst GDP is strong and the US? pretty much in full employment.
There was a sloppy 7 year auction, repeating the theme that investors are cautious about buying long term debt.
Real gross domestic income (GDI) is a measure of the incomes earned and the costs incurred in the production of gross domestic product. It's another way of measuring U.S. economic activity. BEA also publishes the average of real GDP and real GDI.
10 Year US Gov Bond Yields Driving Markets
Most markets are trading the 10 year bond, as inflation dropping adds validation to FED cutting rates and dollar lower.
UST 10 year yield looks to drop to 4.1%
In The Background
USD monthly since 1986. "Printing USD" since 2008 has pushed the USD higher, not lower.
Gold just shy of all time high?
领英推荐
Banking System
What’s going on in banks? CEOs selling shares. Rumours of liquidity hoarding. BPFP → record highs. RRP → 0
In Case You Missed It
European CPI Plummets
German recession driving CPI lower
While in Chicago, purchase managers index makes a huge jump
Same for the Institute of Supply Management Survey, nationwide
Australia
Aussie reaching key level
RBA meeting next week looks to be interesting.
Reserve Bank of Australia governor Michele Bullock says household finances are holding up despite the “political noise” around 13 interest rate rises, warning it is “very uncertain” inflation will return to target in the next two years.
“Despite that noise, households and businesses in Australia are actually in a pretty good position. Their balance sheets are pretty good,” Ms Bullock said on Tuesday at a high-powered gathering of central bankers in Hong Kong, which included her predecessor, Philip Lowe.
“We’ve been surprised a little bit on the strength of activity. It’s held up a little better than we thought. That’s meant that services price inflation has held up a bit more. So what we’re observing is a bit more domestic price pressures than we’d expected.”
In his first public remarks since leaving the RBA in September, Dr Lowe said he was worried central banks may not have increased interest rates high enough, and warned the RBA will suffer a credibility hit if it failed to hit its inflation target by 2025.
“I hope that most central banks have done enough [on interest rates] but I’m worried that they haven’t, and it’s doubly important that we pass this first inflation test,” Dr Lowe said.
TRADERS ARE BETTING INTEREST CUTS RATES TO COME
Bullock hawkishness not supported by lower than expected CPI. CPI lower than expected but still very elevated.
This Week's Important Economic Indicators [London time]