New rotation at the federal reserve - BBH

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 22, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Sam Waters, FX Analyst at BBH, notes that driven by overwhelmingly positive employment data prints in October, and under the assumption that price pressures will continue to shepherd inflation rates towards the Federal Reserve’s target of two percent, the Federal Open Market Committee (FOMC) has decided to hike interest rates for the first time in nine years.

    Key Quotes

    “Yellen stated that economic conditions warranting liftoff have been met, including diminished risks from global economic circumstances. The cadence of further tightening will be at the consensus of a new rotation of voting regional Fed Presidents and the permanent voting members on the Board of Governors.”

    “The FOMC is captained by the centrist Troika of permanent voters: Janet Yellen (FOMC Chair), William Dudley (President of the New York Federal Reserve), and Stanley Fischer (Board of Governors, Vice Chair). Their individual views disclose marginal divergences, but together they are the policy-driving faction, and appropriately denominated as the relative center of hawkish and dovish bias.”

    “The remaining Governors will carry into 2016 and continue to drive their dovish influence. Two prominent Governors, Lael Brainard and Daniel Tarullo, claim that improvements in the labor market are steady but not yet sufficient enough to warrant a hike, nor are they a reasonable proxy for our core inflation rate, which remains below target.”

    “With several changes to the voting regional Fed Presidents, The FOMC shifts from a dovish bias to a more hawkish bias. One notable move will be the departure of the Chicago Fed President and 2015 voting member, Charles Evans. Evans believes the magnitude of the Fed’s tightening is more crucial than overall timing. In line with his fellow doves, Evans’ sites concerns over inflation as his primary reason for delaying liftoff. He will be replaced in 2016 by Boston Fed President, Eric Rosengren. Rosengren shares a similar disposition for a gradual increase, but has softened his dovish lean given recent economic data.”

    “Along with the swing of an additional hawk voter, center and dovish positions have been softened in light of auspicious economic data. Look for the new balance of a more hawkish lens in the FOMC to manifest itself, and its implications on tightening, throughout the course of the upcoming year.”
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