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Analysts at Nomura noted that last week, a number of Federal Reserve policymakers publicly discussed the future path of monetary policy.  

Key Quotes:

“Importantly, Governor Brainard delivered her speech after a relatively longer interval than other Fed officials. Her past speeches prior to the March and June FOMC meetings both contained important messages regarding those meetings. In our view, her speech this week was a little hawkish in terms of the near-term policy outlook as she argued that the “short-term” neutral rate has been rising given the strong economy, lower unemployment rate, and easy financial conditions.

Her comment marginally increases the risk of the Fed raising rates at a faster pace than our current expectation next year (i.e., at a quarterly interval rather than every six months, which is our current forecast). However, she acknowledged that an economic boost from expansionary fiscal policy would bolster the economic outlook for the next two years, implying that the policy rate could be reduced slightly in 2021 as the boost from fiscal stimulus wanes. In addition, she indicated that the “longer-run” neutral rate remained stable. Her comment appears in line with our view that the median of the FOMC participants’ projections for the longerrun federal funds rate is unlikely to move substantially at the September meeting.

Last, she continued to be cautious about the financial stability risks as she described the Fed’s assessment suggesting that “financial vulnerabilities are building.” This implies that the possibility of raising Counter-Cyclical Capital Buffer (CCyB) might be higher than generally thought.

Besides Governor Brainard, Kaplan, Bostic, Bullard, Evans and Rosengren appeared publicly. Atlanta Fed Bostic remained his dovish stance, calling for only one more hike this year while Chicago Fed’s Evans reiterated his openness to two more this year.

Dallas Fed Chief Kaplan stated that the policy rate should reach the (longer-run) neutral level but it might not need to go beyond, while many other policymakers are expecting somewhat “restrictive” monetary policy.

Separately, Evans highlighted the importance of discussions on alternative policy tools at the effective lower bound as showed in the latest FOMC minutes. Last, San Francisco Fed announced that Mary Daly, currently its Director of Research, will become its new president, effective on 1 October. As the primary focus of her research has been labor markets, we do not know much about her stance on monetary policy. However, we will closely monitor her remarks to better comprehend where she stands on various policy topics.”

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