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Fed speak summary: Officials in no hurry to hike rates

US CPI and Retail Sales data expected today

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With the FOMC meeting due in a week’s time, Fed officials hit the news wires last week. Investors were expecting the central bank officials to offer some clues on monetary policy and expectations on the next interest rate hike.

The main underlying theme from the various speeches given over the week brought the conclusion that the Fed will remain on the back foot as far as rate hikes are concerned.

Last week saw Fed officials speaking which included Fed Governor, Lael Brainard, Minneapolis Fed President, Neel Kashkari, Cleveland President Loretta Mester, NY Fed President William Dudley and Dallas Fed President, Robert Kaplan. The Fed speak comes ahead of a blackout period which starts very soon.

The markets are expecting the FOMC’s meeting due later in September to see no changes to interest rates. Balance sheet normalization is, however, expected to be announced by the Fed, but as for forward guidance little has been said.

Among the host of speakers last week, Neel Kashkari said that the Fed’s interest rate hikes might be doing real harm to the economy. He said this explained why inflation has remained low while economic growth has also slowed.

“It’s very possible that our rate hikes over the past 18 months are leading to slower job growth, leaving more people on the sidelines, leading to lower wage growth, and leading to lower inflation and inflation expectations,” Kashkari said, speaking at the University of Minnesota.

Other FOMC members had similar dovish views. This came from Lael Brainard, who has been a staunch hawk. “My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” Brainard said at a speech in New York.

The NY Fed President, William Dudley also echoes similar views as he said that the lower inflation could allow the FOMC to remain patient with rate hikes.

He said it was too soon to judge on the timing of the next rate hike, subtly suggesting that the markets will have to wait until October to hear about any plans for further rate hikes.

Dudley also said that the hurricane Harvey and Irma could also impact the economic growth in the US. However, Dudley said that rates would gradually move higher over time suggesting that the Fed is willing to carefully assess the economic data before announcing further rate hikes.

FOMC vacancies start to mount with Fischer announcing his resignation

The FOMC is also heading for a crucial period as far as the officials are concerned. Last week, the Federal Reserve vice-chair, Stanley Fischer said that he would be resigning in October (months before his term expires in June 2018). Fischer cited personal reasons for his resignation.

With Fischer’s resignation, there are a total of four vacant seats. Further to this, the Fed Chair, Janet Yellen’s term will be expiring in February 2018. This potentially leaves President Trump a lot of choice and influence in appointing the members. The impact from this could be the fact that new officials could potentially reverse the course on monetary policy.

Looking ahead: US CPI and Retail Sales

Looking ahead, data from the US today will see the monthly inflation figures coming out. According to economists polled, consumer prices in the US are expected to rise 0.3% on a month over month basis. This is expected to push the annual inflation rate to 1.8% in August. Core inflation, which excludes the volatile food and energy prices are however expected rise just 1.6% in August. This is slightly lower than the 1.7% increase seen the month before.

An increase in the CPI figures could help the US dollar to recover some of its losses as it could kindle the expectations of another rate hike from the Fed as originally planned.

On Friday, the monthly retail sales figures are expected to show a 0.1% increase in headline retail sales. This is slower than the 0.6% increase seen the month before. Retail sales excluding autos are however expected to rise 0.5%, keeping the pace of increase steady.

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