The recent economic data coming from the mediocre NFP and the poor services sector measure seem to bury the chances of a rate hike in September. They were already low due to the upcoming presidential elections. However, the Fed has a limited period to change markets’ expectations, if it wants to.
However, the Fed has a limited time to change markets’ expectations, if it wants to. The FOMC has a self-imposed “quiet period” ahead of the meetings when it refrains from speeches, interviews or any other commentary. In the two weeks that have passed since the hawkish Jackson Hole Symposium, there hasn’t been anything earth-shattering. There were also few planned speeches, at least from the “Big Three” – Yellen, Fischer, and Dudley.
However, we now have a previously unscheduled statement from Lael Brainard on Monday at 17:00 GMT. Brainard is a known dove that does not often speak about monetary policy. And as the theory goes, her unusual public appearance, just before the Fed turns silent is a hint in itself.
If she speaks out and supports a rate hike nine days later, this will serve as a “smoking gun” that will convince market participants that the Fed is set to raise rates, despite its natural dovishness, the elections, and the data. Brainard not only speaks infrequently, is not only a dove but is also a permanent voting member of the Fed as a member of the Board of Governors.
Is she going to guide markets to a hike? In this case, the dollar has room to run, as a rate hike is certainly not priced in, and for good reasons. The chances for a hawkish turn are low. It is more likely that she refrains from any hawkish talk. We’ll know soon enough.
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