Yellen: An incremental improvement in the outlook for rate increases - AGFXC

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the Fed Chair Yellen signaled an incremental improvement in the outlook for rate increases, but she left out a lot of possible comments that might have narrowed the view on the timing of the next hike. 

Key Quotes

“She appears to be keeping her options open.

To more clearly move the needle in favor of a rate hike, the Fed would like to see clearer evidence that stronger payrolls is coinciding with other measures of a tightening/improving labor market; including lower unemployment, under-employment, part-time for economic reasons, higher hours worked and wages.

US yields rose on Friday after Vice Chair Fischer comments. When asked, he agreed to the question, that “we should remain on the edge of our seats” for a possible hike in September and even two hikes by year end.  But Fischer also emphasized it depends on the data.

Looking through the framework on how Yellen sees monetary policy, her speech suggests she may not be convinced yet that the Fed should hike in coming months, and if they do, it will be a long gap before hike three in the cycle.

A key point to take out of all the Fed commentary over the last month is that there is increasing willingness to get another hike done this year, but there is also increasing wariness about hiking through the cycle.  The clearest take away is that the Fed is espousing a gradual and cautious approach.  This suggests that future hikes are more likely to be delayed on any evidence of stalling in growth and less likely to be accelerated on strength.”