Federal Reserve Views

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While we are in the blackout period that arrives a week before each Federal Open Market Committee (FOMC) meeting, there are still Fed views working their way into the system.

The Wall Street Journal provided some Fed “news” with their item noting that Fed officials are “looking more confidently toward an interest-rate increase before the end of the year, possibly as soon as September.” They base that view on interviews and public statements by Fed officials since the last FOMC session, noting a stabilization in markets in the wake of the Brexit vote.

While expecting no rate change at the FOMC session July 26-27, officials are likely to shift their post-meeting statement away from what we’ve seen after the last two sessions – one expressing uncertainty over the direction of policy ahead.

The WSJ notes that the view is rising on the Fed that the US economy “is on a more solid footing than it seemed to be when officials last gathered in June, setting the stage for raising interest rates if economic data hold up in the months ahead.”

Given that situation, the potential for a September rate rises, the WSJ notes, would certainly catch markets by surprise potentially given that Fed funds futures indicate a less than 20% chance that the Fed will boost the range of short-term rates at the September session.

Given no expected rate rise at the July session, that was already expected to mean a heavy focus on the post-meeting statement. And without a presser by Fed Chairwoman Janet Yellen, markets will only have that post-meeting statement until the blackout gets lifted on that following Friday. So the post-meeting trading period could get interesting.

That means the following week’s appearances by Fed officials will loom large, especially if there are any public shifts by officials regarding their stance on the direction for monetary policy. While we know some such as KC Fed’s George, a 2016 voter, will be calling for rates to rise, much attention would be put on those like St Louis Fed’s Bullard who garnered headlines by his shift to seeing or at least indicating he thinks there needs to be only one rise over the next year or more. If he shifts again, that combined with a more “hawkish” post-meeting statement, should prompt markets to up their expectations for a rate rise, potentially as soon as September.

But the other factor that will remain in the Fed’s policy view? Data will drive that decision. So if the intervening data do not appear to support a rate rise, that may prompt more volatility ahead for markets as they continue to digest each piece of economic news and data.

NOTE: This column is copyrighted material; therefore reproduction or retransmission is prohibited under U.S. copyright laws.