Talking Points:

  • The US Dollar Index closed 0.5% higher today, hitting its highest level since July 26
  • Fed Members spoke today on topics ranging from monetary policy to the new Fed Chair
  • Fed Funds Futures are currently pricing in a 73% probability of a 25bps hike in December

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The US Dollar rose nearly half of a percent today as Fed members shared their thoughts on economic performance and forward guidance on prospective central bank policies. Today’s speakers included the Kansas City Fed’s Esther George, the San Francisco Fed’s John Williams and the Philadelphia Fed’s Patrick Harker.

Philadelphia Fed President Patrick Harker spoke around 12:30 GMT and shared some comments regarding the upcoming and much anticipated appointment for the next Fed Chair. He noted the importance of having a deep understanding of the economy and markets in order to lead the Fed. Harker, who is currently an FOMC voting member, also echoed the sentiments of other Fed members on topics such as employment and inflation. Below are some of his comments from today’s interview.

Philadelphia Fed’s Patrick Harker (12:30 GMT)

  • The US economy is incredibly resilient
  • Fed chair must be a consensus-builder, act as a team player
  • Need a deep understanding of the economy and markets to run the Fed
  • Sees issues around US inflation dynamics, sees economic growth slightly above 2 percent this year
  • “I penciled in a third rate hike in December, still see three rate hikes for next year”
  • Lack of skilled workers top issue for economy
  • US labor market tight but not creating quality jobs
  • US is essentially at point of maximum employment

San Francisco Fed’s John Williams (13:15 GMT)

San Francisco Fed President John Williams is currently not a voting member of the FOMC. His comments today focused on inflation and some pertinent fiscal policy related impact on prices as well as his outlook for the economy.

  • Mandated cuts to Medicare payments damping inflation
  • Sees unemployment declining to a bit below 4 percent
  • Sees inflation rising to 2 percent, Fed able to raise rates
  • Fed in the future to rely more on unconventional tools
  • US Economy on track despite hurricanes
  • Too much growth could spur asset bubble, inflation
  • We need to have a strong economy, we need to have a low unemployment rate for a lengthy period of time, basically to offset some of those downward pressures on inflation, which I expect to persist, and get overall inflation up
  • Says that once Fed gets policy rate to around 2.5% “then we’re basically done,” calling that “a very shallow path” of increases

Kansas City Fed’s Esther George (20:30 GMT)

The Kansas City Fed President began speaking around 20:30 GMT and noted the need for further gradual interest rate hikes, in line with rhetoric from other Fed members. She also discussed the risks that may arise from waiting too long to raise rates, such as a steeper hike path later on, echoing other members’ concerns. Below are some of her comments from today’s press event.

  • Further gradual rateadjustments will be needed
  • Waiting too long risks “more aggressive moves” later
  • US Economy growing at above-trend pace
  • It is appropriate Fed move cautiously on rate policy
  • Current fed policy risks “excessively risky” endeavors
  • Delaying rate hikes poses risks to growth and stability

In the previous FOMC meeting, held on September 20, the Fed kept rates unchanged at 1.25 percent. However, they announced that October will be the start date for its policy normalization plan focused on reducing its 4.5 trillion dollar balance sheet. The next FOMC meeting will be the second to last one for 2017, and will be held on October 31 through November 2.

Alongside the FOMCs announcement, the bank released figures from its Survey of Economic Projections report. The FOMC members’ median expectations for GDP growth were 2.4 percent in 2017, falling to 2.1 in 2018, with long run projections of 1.8 percent. The Fed’s median projections for core inflation see prices rising to 1.9 percent in 2018 and remaining at 2 percent through 2020. Fed Funds futures are currently indicating a 73 percent probability of a 25 basis point hike in December to 1.50 percent.

US Dollar Rises As Markets and Fed Prepare for December Hike