Fed likely on track to hike rates. FOMC presidency, inflation in focus

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The FOMC members, Powell and Harker, are scheduled to speak today. The speeches from the Fed members mark a long list of Fed speeches delivered during the week. So far, FOMC members Kashkari and Powell gave their speeches including the Fed Chair Janet Yellen.

Kashkari maintains dovish stance

As expected, the Minneapolis Fed President Kashkari was in favor of the dovish monetary policy. He said that the Federal Reserve started to scale back its QE operations too soon and cited this as one of the reasons for inflation staying low.

“The FOMC’s policy to remove monetary accommodation over the past few years is likely an important factor driving inflation expectations lower,” Kashkari commented on the central bank’s website.

Yellen speech – No references to monetary policy

On Wednesday, the Fed Chair Janet Yellen also gave a speech at the community banking conference hosted by the Federal Reserve Bank of St. Louis. No major references were made by the Fed chair.

Ms. Yellen has maintained the status quo, albeit suggesting during the September FOMC meeting that the Federal Reserve was looking to hike interest rates one more time.

George – Further gradual rate hikes needed

The Kansas city Federal Reserve President Esther George also spoke this week. Maintaining a hawkish stand, George said that further rate hikes, but at a gradual pace were needed. She cited the above trend rate in the economy, and the low levels of unemployment would eventually result in higher inflation.

“At this stage of the expansion, it is appropriate to move cautiously. But waiting too long risks more aggressive moves, which, history shows can invite prospects of recession,” George said last week.

The next Fed President

For the moment, the investors are focusing on who the next Fed chair will be. Jerome Powell, the Federal Reserve Governor, was said to have been interviewed by the White House and is one of the front-running candidates. Powell is said to be dovish in his outlook, which falls in line with a dovish monetary policy that President Trump favors. Powell is likely to maintain the course set by his predecessor, Janet Yellen, that rate hikes will come but only at a gradual pace.

Other contenders to the post include outsides, Gary Cohn who is the President’s economic advisor and former Governor, Kevin Warsh. However, among the two, Cohn is said to be more hawkish especially after his famous words saying “If we woke up tomorrow and every central bank in the world raised their interest rates by (3 percent), the world would be a much better place.”

Although the markets will likely react to the next Fed President’s appointment, it is quite likely that with the consensus needed by the FOMC the overall status quo will remain the same.

US Consumer prices expected to rise

The main data point for today will be the inflation figures for the month of September. Headline consumer prices are expected to rise 0.6% on a month over month basis in September. This shows a slight acceleration from 0.4% increase seen the month before.

However, core CPI is expected remain steady, rising at the same rate of 0.2%in September, as it did the month before. On a year over year basis, headline CPI is expected to rise 2.3% up from 1.9% previously, while core CPI is expected to edge higher to 1.8%, up from 1.7% previously on a year over year basis.

Retail sales numbers are also coming out today with estimates pointing to a 1.6% increase. This marks a robust rebound in retail sales which fell 0.2% the month before. Excluding autos as well, retail sales are expected to rise 0.9% on the month.

Although some of the data might be distorted, a beat on the estimates will no doubt help raise further conviction on the Fed’s plans to hike interest rates this December.

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