Monetary Policy

The Divergent Monetary Policy Theme is Back

The US dollar staged a strong pre-weekend rally on hints that the Fed will raise rates before the end of the year.  There was initially follow through dollar buying in Asia before a more stable tone emerged in Europe, where London markets are closed for a bank holiday.  The easing of the dollar’s upside momentum may set the stage for a bout of profit-taking later today and tomorrow.  

Playing the Central Bank Odds

Yellen's presentation at Jackson Hole today is the highlight of the week.  It also marks the end of the summer for many North American and European investors.  It may be a bit of a rolling start for US participants, until after Labor Day. However, with US employment data next Friday, many will return in spirit if not in body. 

Arguing Against Kocherlakota's Argument

Former Minneapolis Fed President Kocherlakota, and now a professor at the University of Rochester used this Great Graphic in a recent Bloomberg column.

Kocherlakota was a dove when he was at the Fed and remains dovish.  He is concerned that the US economic performance is, as he says, not what it seems.  By this, he means it is weaker than the GDP figures suggest.  He acknowledges the US has grown faster than the other high-income economies.  He dismisses it because the US population has also grown faster, but the participation rate has not.

The U.S. Dollar's Decline Goes Against the (Fed) Grain

The US dollar has fallen against all the major currencies this month. Even the pound has gained about 0.3% against the heavy greenback. 

What is most striking about the dollar's decline is that is has taken place despite a modest upgrade of the odds of a Fed hike.  Consider on the broadest level, the Dow Jones polls that found 71% expect a rate hike before the end of the year compared with about 50% in the July survey. 

Team Dudley Includes Fischer

Last week, some market participants were giving more credence to what seemed like dovish FOMC minutes than to NY Fed President Dudley's remarks that accused investors of complacency over the outlook for rates.  Yesterday, Vice-Chairman of the Federal Reserve Fischer seemed to echo Dudley's sentiment, and this has underpinned the dollar and is the major spur of today's price action.

Choosing between Dudley's Comments and the FOMC Minutes

It is not a good day for the US dollar.  It is being sold across the board.  The seemingly dovish FOMC minutes released late yesterday appears to have gotten the ball rolling.  The takeaway for many was that any officials wanted more time to assess the data at the July meeting. 

RBA Governor Stevens is Stepping Away after 10 Years

On September 18 2016, Glenn Stevens will end his ten-year mandate as governor of the Reserve Bank of Australia (RBA). His experience in the top job provides a wealth of lessons for the next generation of policymakers; that’s arguably his most important legacy.

A graduate from the University of Sydney and the University of Western Ontario in Canada, Stevens worked in the RBA research department between 1980 and 1992. He then held positions as department head, assistant governor (economic) and deputy governor. In 2006, he was appointed governor.

The BOE Makes a Widely Anticipated Cut, and can Cut Again

Sterling has slumped two cents in the wake of the Bank of England's announcement.  It cut the base rate 25 bp and announced a resumption of its asset purchase program.  It will buy GBP60 bln of Gilts and added corporate bonds to its purchase plan, which will be completed over the next six months.  Corporate bonds will initially account for up to GBP10 bln asset purchase.

Today is the BOE's Day to Surprise or Disappoint

The Bank of England owns today, though tomorrow will be about the US jobs report. The BOE disappointed the market last month by not immediately responding to the UK referendum.  It had laid out a somber economic and financial scenario as a risk case if the UK chose to leave the EU. At the time, and even after the referendum, some accused Carney of being too partisan.