Central Bank Watch: Fed Speeches, Interest Rate Expectations Update

US DATA DELUGE PROVOKES HIKE SPECULATION

In this edition of Central Bank Watch, we’ll review the speeches made in August by over the past week by various Federal Reserve policymakers – almost every single policymaker except for the Fed Chair himself. No doubt about it, taper talk is increasing in the run-up to the Jackson Hole Economic Policy Symposium, set to take place later this month from the 26th to the 28th.

MORE TAPER TALK

In the wake of the July FOMC meeting, and in light of the surge in the delta variant caseload in the US, traders began reducing their expectations for a more hawkish Federal Reserve. However, the combined impact of the strong July US nonfarm payrolls report – the second in a row – plus the July US inflation rate report (CPI) has sparked a shift in both market expectations and language used by FOMC policymakers thus far in August.

August 1 – Kashkari (Minnesota president) said that he “he was very optimistic the fall would be a strong labor market with many of those Americans coming back to work…but if people are nervous about the delta variant, that could slow some of that labor market recovery and therefore be a drag on our economic recovery.”

August 2 – Waller (Fed governor) commented on the potential timing of a taper announcement, noting that he believes that the economy “could be ready to do an announcement bySeptember....If the jobs reports come in as I think they’re going to in the next two reports, then in my view with tapering we should go early and go fast, in order to make sure we’re in position to raise rates in 2022 if we have to.”

August 3 – Bowman (Fed governor) offered a more cautious tone on the labor market, having noted that “despite the encouraging pace of recent hiring, employment is still far below where it was. In June of this year, there were 6.8 million fewer jobs than there were in February 2020.”

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