US Dollar Extends Advance as Fed Speakers Endorse Rate Hike Bets

Talking Points:

• Boston Fed's Rosengren believes fiscal stimulus would warrant a quicker rate hike path
• Vice Chairman Fischer said "noticeably faster US growth would mean quicker hikes"
• Comments from Fed branch Presidents Bullard, Kashkari and Harker are next on tap

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Members of the Federal Reserve's Board of Governors and various district Presidents are speaking about policy this week following the results of the US presidential election. Over the past week rate hike expectations have firmed as the incoming administration's policy objectives become clearer.

Comments from yesterday's speakers were echoed today, as Boston Fed's President Eric Rosengren noted that it is likely the FOMC would tighten rates faster given more fiscal stimulus. He also prefaced his comments by saying that it is premature to know what that fiscal policy may be. Rosengren also said he believed the market's assessment of a December rate hike seemed plausible.

Daniel Tarullo of the Board of Governors and Vice Chairman Stanley Fischer also spoke today. Both noted the slower pace of the US's recovery from the previous recession but echoed calls for interest rate hikes on the horizon. Tomorrow, comments from branch Presidents Bullard (St. Louis), Kashkari (Minneapolis) and Harker (Philadelphia) are on the docket.

Eric Rosengren (Boston Fed)

• Would prefer Fed to tighten gradually
• Sees US overshooting risk if US jobless rate falls further
• November statement aligned with likelihood of December rate hike
• Must consider risks of waiting too long to hike
• Premature to know what fiscal policy will be
• We'd tighten faster with more simulative fiscal policy
• Expects wages and salaries to continue rising
• Performance abroad is the biggest threat to our forecast
• Raising rates too fast can threaten the recovery
• Makes sense to use fiscal policy with rates this low, inflation is actually picking up.
• On average we are going to hit the 2% inflation target
• We have to raise rates faster than market forecasts
• Falling jobless rate is puzzling amid the current slow growth environment
• US heading for hot labor market
• Didn't dissent in November due to statement change
• Market assessment of December hike seems plausible

Daniel Tarullo (Board of Governors)

• US has had an unusual recovery from the previous recession
• Sees grounds for caution in Fed rate hike debate
• Makes sense to have the rate hike discussion now, we haven't let inflation get away from us
• The risks the Fed faces are probably more external than internal
• Regulators have made enormous progress, US financial system is strong

Stanley Fischer (Vice Chairman)

• Noticeably faster US growth would mean quicker hikes
• US growth has been slower in this recovery
• Bond market fire sales a source of policy concern
• Regulatory changes have improved financial stability
• Flash market events may be more frequent
• Must keep markets informed about plans for balance sheet
• Fed takes into account development in financial markets
• Don't yet see move in bond yields as terribly worrying