8 Apr 2015
FOMC Minutes to reflect Fed’s dovish bias? – SG
FXStreet (Barcelona) - Kit Juckes of Societe Generale, desires some explanation on the Fed’s new dot-path from today’s FOMC minutes, and expects the accounts of the meeting to reflect a cautious, data-dependent and a dovish Fed.
Key Quotes
“…we're looking for an explanation of the Fed's new, lower dot-path, which remains far, far above the market's pricing of where rates will go. And we've seen a fair amount of data since the FOMC meeting anyway.”
“I may spend the day playing with Bloomberg's Taylor Rule model to pass the time, though my first attempt, in which I get a reasonable pre-GFC fit by putting 'neutral' real rates at 1.5% and Nairu at 5% (unfashionably low) still suggests the Fed ought to be at 1 1/4% by now. And if the unemployment rate goes on falling at the current (1% per annum) pace, you'll be hard-pushed to keep your Taylor rule forecast below 3% in a year's time.”
“Of course, the Taylor Rule, like most current central bank models and thought processes, assumes that Nairu is meaningful and that inflation reflects output gaps and economic slack.”
“Which might not be the case at all. Anyway, what we are bound to learn is that the Fed is planning on raising rates 'some sunny day' but is flexible, data-sensitive, cautious, and has a great big dovish bias. Maybe that will send breakeven inflation a bit higher and SPX through 2100, but will it move FX?”
Key Quotes
“…we're looking for an explanation of the Fed's new, lower dot-path, which remains far, far above the market's pricing of where rates will go. And we've seen a fair amount of data since the FOMC meeting anyway.”
“I may spend the day playing with Bloomberg's Taylor Rule model to pass the time, though my first attempt, in which I get a reasonable pre-GFC fit by putting 'neutral' real rates at 1.5% and Nairu at 5% (unfashionably low) still suggests the Fed ought to be at 1 1/4% by now. And if the unemployment rate goes on falling at the current (1% per annum) pace, you'll be hard-pushed to keep your Taylor rule forecast below 3% in a year's time.”
“Of course, the Taylor Rule, like most current central bank models and thought processes, assumes that Nairu is meaningful and that inflation reflects output gaps and economic slack.”
“Which might not be the case at all. Anyway, what we are bound to learn is that the Fed is planning on raising rates 'some sunny day' but is flexible, data-sensitive, cautious, and has a great big dovish bias. Maybe that will send breakeven inflation a bit higher and SPX through 2100, but will it move FX?”