It didn’t seem too long ago when the Federal Reserve was decidedly hawkish on their stance in September’s rate hike, but key Fed officials as of late have been showing dashes of dovish sentiment–a possible sign that the central bank is getting cold feet with respect to their rate-hiking policy?
Federal Reserve Bank of New York President John Williams is keen to sticking with hiking rates–somewhat.
“We’ll be likely raising interest rates somewhat but it’s really in the context of a very strong economy,” Williams said at a community event in New York on Monday. “We’re not on a preset course. We’ll adjust how we do monetary policy to do our best to keep this economy going strong with low inflation.”
Meanwhile, Fed Vice Chair Richard Clarida was recently on a CNBC segment stating that signs of slowing are beginning to materialize in the global economy.
“There’s a bit of a walk back in progress,” said Don Rissmiller, chief economist at Strategas Research. “I’m sure they’re looking at financial conditions.”
It isn’t just the comments themselves as some analysts are noting that the timing of the latest comments come just a month away from December’s interest rate announcement.
“The market is perceiving them as being more dovish…It’s a small pivot because they’re acknowledging the idea that when you get closer to the end of a hiking cycle you have to feel your way through. You want flexibility. It doesn’t mean they have to stop soon,” said George Goncalves, head of fixed income strategy at Nomura.
Related: Jim Cramer: Markets in ‘One of the Worst Times in a Long Time’ as Yields Rise, Stocks Fall
Of course, the latest comments come as the capital markets were roiled by volatility in an October that saw the all the major U.S. indexes get their fair share of declines. Following a post-midterm election rally the first week of November, volatility made an unwelcome return and the indexes resumed a downward trajectory.
As the oscillations continue, Clarida is unable to derive a convincing trend in the markets just yet.
“I don’t think there’s any clear signal,” said Clarida. “You know, it’s hard even after the fact sometimes to attribute any given move in markets. You know, year to date, the stock market is up and there’s some volatility. So I think right now there’s no clear signal that I would take from it.”
December Rate Hike Not 100%
After the central bank did as expected and stood pat with interest rate hikes in November, the general consensus is that a final rate hike to cap off 2018 is expected, but to say the chances are 100 percent would be too soon, according to San Francisco Federal Reserve Bank president Mary Daly.
“I think it’s premature to say that it’s definitely needed,” said Daly.
“My modal forecast is for two to three (rate hikes) over the next period of time, with the exact timing not being certain,” Daly added.
September’s rate hike saw the central bank raise the federal funds rate 25 basis points to 2.25. The latest Fedspeak is the movement of rates toward a level of neutrality, but that could mean different things to different people–Daly has her own assessment.
“If you asked me today I’d probably pick” the middle of the range, about 2.7 percent,” Daly said.
For more trends in fixed income, visit the Rising Rates Channel.