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September 11, 2016 | Brainard Craps: With Rate Hike Odds of 24% Will the Fed Hike?

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

The FOMC committee will make a policy decision on Wednesday, September 21. Will the Fed hike? Current odds are 24%.

I doubt the Fed hikes with odds that low. But what will the odds be on September 21? That, no one can answer.

Fed governor Lael Brainard, one of the leading doves, will give a speech tomorrow. Her speech was a recent surprise announcement, and it comes just before the quiet time ahead of FOMC decisions.

Speculation is Brainard will shift to a hawkish tone. Will she?

All Eyes on Brainard

fed-governor-brainard

Bloomberg says the Last Word on Fed Policy Goes to Brainard.

Heading into the Federal Reserve’s September meeting, all eyes are on Lael Brainard.

The Fed governor is speaking in Chicago on Monday, making hers the last scheduled appearance before U.S. central bankers go into their traditional pre-meeting quiet period ahead of a Sept. 20-21 confab in Washington. Some Fed watchers think Brainard, who’s been among the most dovish of Fed members, will send a signal that tightening is coming—a flip-flop that would be sure to move markets. Others see the timing of her speech as consistent with her record because she spoke close to both the March and June meetings, urging a patient stance both times.

Janet Yellen – Chair – Speech: 8/26

Quote: “The case for an increase in the federal funds rate has strengthened in recent months.” Many economists saw this as a sign that Yellen views a rate increase as being on the horizon, though she didn’t explicitly signal that one was coming in September.

Jerome Powell – Governor – Speech: 8/26

Quote: Powell said that “we can afford to be patient. But when we see progress toward 2 percent inflation and a tightening labor market, and growth strong enough to support all that, we should take the opportunity” to hike.

Stanley Fischer – Vice Chairman – Speech: 8/30

Quote: Asked on CNBC on Aug. 26 whether Fed watchers should be looking for a move in September, and possibly for two hikes this year, Fischer said, “What the chair said today was consistent with answering ‘yes’ to both of your questions.” He wasn’t asked about September during an Aug. 30 interview, but he didn’t voluntarily walk the comment back, either.

Eric Rosengren – Boston Fed President – Speech: 8/31, 9/9

Quote: “Modest increases in wages and salaries seem to me consistent with tightness in labor markets beginning to appear more strongly in the wage data,” and “a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery,” Rosengren said in Quincy, Massachusetts, on Sept. 9. His comments were broadly hawkish, favoring an increase sooner rather than later.

Loretta Mester – Cleveland Fed President – Speech: 9/1

Quote: Mester said “a gradual upward path of interest rates” is consistent with her outlook, based on incoming economic data. “If you have a forecast and inflation is moving up to your target and you’re at full employment, then it seems like a gradual increase from a very low interest rate is pretty compelling to me.”

Daniel Tarullo – Governor – Speech: 9/9

Quote: “I wouldn’t foreclose that possibility,” Tarullo said on CNBC, when asked about a 2016 rate increase. “It’s important for all of us, in going into each meeting, to remain open to the possibility that momentum has changed, that expectations have changed, and thus for us to change our own views.” Even so, he didn’t sound that optimistic about the near term, saying “what is optimal right now is to look to see actual evidence that the inflation rate would continue to go up and would be sustained at around the target.”

Speech Schedule

Brainard gets the last word by the Fed, but there are two other speeches the same day.

  • Atlanta Federal Reserve President – Dennis Lockhart – 9/12/2016 8:00:00 AM
  • Minneapolis Federal Reserve President – Neel Kashkari – 9/12/2016 1:00:00 PM
  • Federal Reserve Governor – Lael Brainard – 9/12/2016 1:00:00 PM

Brainard’s speech is on U.S. economic outlook and monetary policy implications at The Chicago Council on Global Affairs, in Chicago.

The other speeches are random yapping.

Data Releases

  • Import and Export Prices: 9/14/2016
  • Retail Sales: 9/15/2016
  • Producer Price Index: 9/15/2016
  • Philadelphia Fed Survey: 9/15/2016
  • Empire State Survey: 9/15/2016
  • Industrial Production: 9/15/2016
  • Business Inventories: 9/15/2016
  • Consumer Price Index: 9/16/2016
  • Consumer Sentiment: 9/16/2016
  • Housing Market Index: 9/19/2016
  • Housing Starts: 9/20/2016

Not Suite So Simple

mish

Market, Not Brainard, Gets Last Word

Unless the Fed has advance notice otherwise, there is quite a decent chance little of that data supports a rate hike decision.

If retail sales, housing, and the CPI do not support a rate hike, whatever odds Brainard adds, if any, might vanish in the following few days.

I would look for a wishy-washy statement to the effect of “We will hike as soon as the data supports a hike, and we expect that to be sooner rather than later”.

Brainard Craps

The problem for Brainard, if she issues a forceful case for a hike, is the data might slap her in the face immediately within days of her speech.

Feelin’ lucky Brainard?

Mike “Mish” Shedlock

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September 11th, 2016

Posted In: Mish Talk

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