Fedspeak This Week

Federal Reserve, Fedspeak – Talking Points

• Fedspeak back out in force amid strong market rally
• US CPI comes in soft, ushering swift rates repricing
• US Dollar continues to decline as rates sink

This week’s slate of Fedspeak takes on a new level of importance following this morning’s CPI print. Core and headline both came in softer than what the market was expecting, which has fueled a massive rally across risk assets. The market appears to be running with the notion that the Fed is nailed on for a 50 basis point (bps) rate hike at the December meeting following this morning’s data. This sentiment was echoed by a tweet from the Wall Street Journal’s Nick Timiraos, who stated that the stage is set for a 50 bps rate hike in a few weeks’ time.

December Rate Hike Probabilities

Courtesy of CME Group

Such a sudden rally across markets comes at a unique time, as we are just days removed from a 75 bps rate hike from the Federal Reserve. While Federal Reserve officials may not be moved by a small rally in risk, a larger counter-trend rally may catch their attention. Rallies across stocks and other speculative assets ultimately loosens financial conditions, which goes against the current aims of the FOMC. In the midst of today’s stunning rally across risk assets, the US Dollar has plunged along with Treasury yields. Taking this into account, the tone of Fedspeak may shift should Fed officials feel that conditions have loosened too much.

At the beginning of each trading week, I assemble the schedule of Federal Reserve officials that are slated to speak. This unique publication, which can be found here, allows traders to learn about and analyze market moving events that may not necessarily be on their calendar. As we live in a world dominated by the moves in US rates markets, being able to see the Fed’s next move may help traders in their journey through markets.

Today’s Notable Fedspeak:

Patrick Harker, Philadelphia Federal Reserve

• Sees signs that the pace of the economy is moderating
• Expects unemployment to rise to 4.5% in 2023
• Favors possible pause when Fed Funds Rate reaches 4.5%

Loretta Mester, Cleveland Federal Reserve

• The labor market remains too tight
• Fed will consider lags, cumulative policy tightening
• The focus can now shift to how restrictive we need to be
• Inflation will moderate and reach Fed’s target by 2025
• Inflation remains widespread and prices of services are not slowing

Mary Daly, San Francisco Federal Reserve

• CPI data was good news, but one month is not a victory
• Inflation expectations remain remarkably well anchored
• Fed must remain steadfast to reduce inflation
• Existing rate range of 3.75%-4.00% is moderately restrictive
• It is appropriate to consider slowing the pace of rate hikes
• Ambiguity surrounding what peak fed funds rate may be

RESOURCES FOR FOREX TRADERS

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— Written by Brendan Fagan

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