Given the dearth of high-impact U.S. data releases, a cacophony of Federal Reserve speeches will likely be the primary driver of the U.S. dollar this week. While the market has already priced in continued tapering from the Fed, traders are starting to look ahead to the first interest rate hike, which is currently expected to come sometime between the first and third quarter of 2015. With a significant subset of Federal Reserve members espousing their views this week, investors will be closely watching for signs of a growing consensus, with obvious implications for the US dollar and risk sentiment more broadly.
The festivities kicked off yesterday with speeches by Fed Presidents Fisher and Williams. Richard Fisher, who is a 2014 voter, generally stuck to his hawkish views, emphasizing that excess bank reserves could serve as inflationary “tinder” and warning that the Fed is in “unexplored territory.” Meanwhile, his more moderate peer, John Williams, struck a more cautious tone, noting concerns with labor market. Critically, Williams, who will be a voter on Fed policy next year, made the following statement toward the end of his presentation:
So, with two Fed speeches behind us, the outlook for the central bank’s first interest rate hike remains muddy. Hopefully as “Fedspeak Week” continues, a clearer consensus will emerge.
Preview of Fed-Related Events This Week
Speech by Philadelphia Fed President Charles Plosser (2014 voting hawk) – Plosser has been a vocal critic of the Fed’s QE program, so expect him to emphasize the inflationary risks to the economy and potentially support a rate hike early in 2015
Speech by New York Fed President William Dudley (permanent voting dove) – Dudley, on the other hand, is anticipated to favor more caution. He’s previous stated that there is a high bar to changing tapering plans, but he’s likely to support a longer period of lower rates once tapering is complete.
Speech by New York Fed President William Dudley (permanent voting dove) – Continuing his busy schedule, Dudley will also comment at a regional labor market press briefing, but the market should have already priced in his views based on Tuesday’s presentation.
Speech by FOMC Chair Janet Yellen (permanent voting dove) – While Yellen is the leader of the Federal Reserve, her “speech” is actually the commencement ceremony for New York University, so she is likely to focus on the graduates’ achievements, not focus on the latest monetary policy outlook.
Speech by Kansas City Fed President Esther George (non-voting hawk) – George was one of the first FOMC members to call for an end to Quantitative Easing back in January 2013, so she may favor a relatively interest rate hike. However, she will not be a voter again until 2016 so her opinions may fall on deaf ears.
Speech by Minneapolis Fed President Narayana Kocherlakota (2014 voting dove) – Kocherlakota fought the consensus view by dissenting to the change in the Fed’s forward guidance policy earlier this year, but he returned to the mainstream view and supported last month’s statement. Given his previous reservations, Kocherlakota will likely sing a dovish tune.
Release of Minutes from April Federal Reserve Meeting – The notes from the most recent Fed meeting will be closely scrutinized, but traders expecting the Fed to telegraph their rate hike intentions will likely be disappointed. With a unanimous vote on policy and no press conference at the April meeting, we anticipate that the minutes will simply re-emphasize the outlook from the official statement. We’ll be out with a thorough review of the minutes Wednesday, so be sure to tune in for the latest insights
Speech by San Francisco Fed President John Williams (2015 voting moderate) – If you recall from above, Williams has indicated that he currently favors a rate hike in the second half of 2015, so this speech is unlikely to move the market substantially.
No Fed events scheduled