Markets priced roughly a two-in-three chance of an October hike and a much higher chance for December as the speeches landed. Williams's "no urgency" message nudged the US dollar index modestly lower, though the currency stayed firm on the day. Rising hike bets and oil-driven inflation fears have pushed US bond yields to multi-year highs, and Barr's reference to high energy prices keeps crude at the centre of the inflation debate. Any oil rally would strengthen the hawks' case, while a pullback would give the more patient officials more room to wait. ---Fed speakers agreed inflation is too high, but split on timing, with Barr and Goolsbee sounding the more hawkish and Williams counselling patience after September's hike.Summary:

  • Four Fed officials spoke on Tuesday, September 29: Governor Michael Barr, Chicago Fed President Austan Goolsbee, New York Fed President John Williams and St. Louis Fed President Alberto Musalem.
  • Barr said his base case is that further policy adjustments are likely needed, and that he does not yet see a clear trend toward a timely return to 2% inflation.
  • Goolsbee said inflation staying above target for 5.5 years is "playing with fire" and that the Fed may need to respond.
  • Williams said one more increase may be appropriate late this year if the economy evolves in line with his forecast, but that there is no need for urgency after the September move.
  • Musalem spoke on Fed communications, arguing that too big a pullback could lead to more volatile rates and inflation. The Fed's September hike lifted its target range to 3.75% to 4%, and markets are betting heavily on another quarter-point rise at the October 27-28 meeting

Federal Reserve officials delivered a mostly hawkish round of remarks on Tuesday, September 29, with Governor Michael Barr and Chicago Fed President Austan Goolsbee stressing the risks of persistent inflation, while New York Fed President John Williams said there is no need to rush after the central bank's September rate increase. That hike lifted the Fed's target range by a quarter point to between 3.75% and 4%, and markets are betting heavily on a further quarter-point increase at the October 27-28 meeting. Speaking to the Detroit Economic Club, Barr said high energy prices and a surge in AI-related investment have knocked progress toward the 2% inflation goal off course. He said he does not yet see a clear trend toward a timely return to target, and that in his base case further policy adjustments are likely to be needed. He expects growth to pick up a little from the roughly 2% pace of the first half, with business investment and consumer spending supporting the labour market. Goolsbee took a similar line on inflation without pointing to a specific move. He said having inflation above target for 5.5 years amounts to playing with fire, and that the Fed may need to respond to supply shocks with long-lasting effects. He added that he would want evidence inflation is falling before rates could be cut, although he also described himself as among the more optimistic policymakers on the rate path. Williams struck a more patient tone on timing while leaving the direction unchanged. In prepared remarks in Buffalo, he said one further increase may be appropriate late this year if the economy evolves broadly in line with his forecast. Reuters reported that he appeared to push back on market pricing for an October move, noting that he described the economy as growing robustly, said AI investment is adding to price pressures, and said tariff-related pressures have largely abated unless new import taxes are imposed. St. Louis Fed President Alberto Musalem spoke on a different subject. In a London speech, he argued that the Fed should explain how and why it sets policy without promising a specific rate path. He warned that too big a pullback in communications could lead to higher and more volatile interest rates and inflation. The remarks come as Chairman Kevin Warsh has set up a task force on the Fed's communications, and coverage of the speech did not include a fresh signal on the rate outlook. The mix leaves the October decision open. Barr's comments support the case for another hike, Williams appeared more relaxed on timing, and Goolsbee wants proof that inflation is easing. Traders will look to upcoming inflation data, and to energy prices, for what tips the balance ahead of the October meeting.

Federal Reserve New York President Williams

This article was written by Eamonn Sheridan at investinglive.com.

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