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US Dollar Steady After Fed Speak Fails To Upgrade Policy Outlook

US Dollar Steady After Fed Speak Fails To Upgrade Policy Outlook

Christian Lewis, Contributor


Talking Points:

  • Rosengren Favors a hike at every other FOMC meeting this year
  • Four moves should be default position according to Rosengren
  • Fed’s Evans and Williams were more moderate in their statements

Keep up with all the latest market events – including Fed speeches – on the DailyFX Economic Calendar

The US Dollar was unimpressed by the latest round of Fed speakers despite some rather hawkish comments particularly from Boston Federal Reserve President Eric Rosengren. Rosengren stated that he was in favor of a rate hike at every other FOMC meeting this year, which would translate to a total of four. However, the Boston Fed President's default view has held consistently that four hikes should be the Fed’s pace unless data proved otherwise, so today’s comments appeared to be of little surprise. This may explain the muted market response after such obviously hawkish comments.

Fed’s Evans and Williams delivered comparatively moderate statements, essentially holding the 3-hike policy tempo that the FOMC projected at the December 2016 and again March 2017 SEPs (Summary of Economic Projections). Evan’s maintained a slightly more dovish view, stating that he supported another one to two hikes this year. William’s left the door open for a more hawkish interpretation saying that he sees the possibility for more than 3 hikes in 2017 given upside risk.

With reference to this spectrum of forecasts from the Fed members, the market itself still shows considerable speculative weight calling for an additional three and even four additional hikes in 2017. While the probabilities afforded those more aggressive views are significantly lower overall, it suggests there is still a speculative stretch to the current market bearings – from Dollar to S&P 500 – when it comes to monetary policy. Merely keeping to the existing FOMC forecast could therefore promote a shift in market view and price.

Fed’s Williams ( San Francisco Fed)

  • 2017 rate view similar to FOMC’s three hikes
  • Sees unemployment bottoming at 4.5% this year
  • More than 3 hikes in 2017 possible given upside risk
  • Rate increase will continue to be gradual
  • Economy will grow at healthy pace amid hikes
  • Sees inflation reaching 2% goal in next year or so
  • Monetary policy limited in room to boost growth now
  • Fed’s role is to keep economy from overheating
  • Shrinking balance sheet will have tightening effect

Eric Rosengren (Boston Fed)

  • Four Fed hikes in 2017 consistent with gradual
  • Both Fed goals being achieved this year
  • Asset prices potential sign of overheating
  • Important to avoid creating an over-hot economy
  • Favors a hike at every other FOMC meeting

Charles Evans (Chicago Fed)

  • Higher business optimism could boost capital spending
  • Inflation of 2.5% for a time consistent with Fed’s goal
  • Supports another one or two rate hikes this year
  • Repeats inflation to reach 2% on sustained basis by 2019
  • Very important to get inflation and expectations up to 2%
  • Expects weaker data in current quarter to prove transitory
  • Won’t act pre-emptively based on proposed fiscal policy
  • Global economy is doing better, ECB policies helpful

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.