Robert Rennie, Research Analyst at Westpac, suggests that Janet Yellen’s speech on the “Outlook, Uncertainty, and Monetary Policy” delivered to the Economic Club of New York yesterday added an important layer to the debate that will the Fed ever raise rates. Key Quotes “On so many levels it was dovish, the most cautious I have seen her in a long time – no mention of April ‘being live’ not even a glib attempt to reference it, there was an inordinately long discussion of ‘global risks’, zero acknowledgment that these risks have dissipated somewhat and US financial conditions have improved. She also spoke at some length about concerning low inflation expectations, high uncertainty on the inflation outlook and the policy measures available if the Fed needs to ease, arguably betraying some underlying nervousness. To be fair Yellen did say the Fed must be alert to the possibility of higher inflation, faster global growth etc. but these upside risks got a lot less attention.” Her speech makes it harder to run through ‘clean’ scenarios that have the Fed hiking even twice this year. The obvious meetings to focus on would be June, Sep and Dec. We also have July and November as well i.e. a total of 5 opportunities before year end. The June FOMC comes 1 week before the UK Brexit vote. Given the level of focus Yellen placed on “global developments”, it’s harder to see a rate hike in June. The July meeting comes a week after the (likely contested?) 2016 Republican National Convention. Too soon? The November meeting comes less than a week before the US Presidential election. Too close? So it’s possible to argue the only ‘clear’ dates are September 21 and December 14 suggesting the next Fed could be six months away. Now, Yellen’s voice is one voice on the FOMC and last week we saw some discussion over how ‘live’ April might be, especially if the jobs picture continues improving. That remains our view - Westpac is forecasting June and December hikes; that the economic justification will outweigh Yellen’s ‘risks’. However, if Yellen is signalling greater caution about risks associated with global developments/ economic disturbance, and if the next Fed move is still 6/9 months away, then it seems entirely possible we see a period of further strength in the A$.” For more information, read our latest forex news.