Monetary Policy

  • The Fed scours economic data looking for a reason to raise its target rate.

    The Federal Reserve is Still Looking for a Reason to Raise Interest Rates

    The key issue as the market heads into the weekend is whether the US dollar is breaking out of its trading range to the downside. Has the disappointing US economic data and the somewhat better European data finally taken its toll and forcing the dollar bulls to rein their enthusiasm?

    Helped by the sixth consecutive advance in oil, the Canadian dollar extended its advance out of the three month trading range.  A less dovish central bank had provided the earlier fuel. 

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  • Don't read too much into the maturity breakdown, but it's there for analysis.

    A Breakdown of the ECB Asset Buying Spree

    The ECB is a month into what it has signaled will be at least an eighteen-month asset purchase program.  It had begun buying asset-backed securities and covered bonds earlier, but starting last month began buying sovereign and supranational bonds. 

    As of April 3, the ECB settled 4.89 bln euros of ABS purchases, 65.67 bln euros of covered bond purchases and 52.52 bln euros of public bonds (sovereigns and supranational bonds). 

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  • Listen closely to Fed Chair Yellen for, perhaps, more hawishness.

    Can Fed Chair Janet Yellen Be More Hawkish?

    As the stock market prepares to close later today, Yellen will deliver a speech on the new normal for monetary policy at a conference hosted by the San Francisco Federal Reserve, of which she was previously the President. The question on many lips today is whether she will be more hawkish than she was at the press conference following the FOMC meeting.

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  • The Fed's dot-plots receive a lot of attention, but what do they mean?

    Dot-Plots 101: A Guide to Fed Opinions

    Largely the Summary of Economic Projections, the infamous dot-plot, drove the dramatic reaction to last week’s FOMC meeting, which may still not be complete. This Great Graphic shows the latest iteration.

    What riveted the investors was the sharp reduction in the dots compared with December 2014 iteration.  This was the essence of the market's dovish read. 

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  • Many connected factors are driving the US dollar higher.

    What is Driving the Dollar Now?

    The events of the past week will continue to reverberate in the capital markets in the week ahead. The key development was the market’s ultra-dovish read of the Federal Reserve. Although the dollar recouped the lion’s share of the knee jerk losses, the debt markets have not returned to status quo ante.

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  • The Fed is now more balanced though some will say more dovish.

    The Market's Overreaction to Perceived Fed Dovishness is not Unexpected

    The extremely dovish market reaction to the outcome of the FOMC meeting was more a function of the dot-plots than the FOMC statement or Yellen's press conference. 

    Methodologically, we have argued that the Federal Reserve is like the Chinese Communist Party in that policy emanates from a central committee.  That central committee at the Federal Reserve is composed of Yellen, Fischer and Dudley.  The FOMC statement is their organ--the most succinct expression of their views.

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  • No patience, but no hurry to raise rates either.

    The FOMC Minutes Run Out of Patience

    The Federal Reserve met the widespread market expectations.  It dropped the word patience and recognized growth had moderated.  It wanted to see more improvement in the labor market and needs to be confident that inflation will move toward its target in the medium term. 

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  • A Fed meeting minutes primer about what to expect.

    The FOMC Meeting is This Week's Highlight

    The Federal Reserve meeting is the highlight of the week.  The most pressing issue is the continued evolution of its forward guidance that will maximize the room to maneuver.  Until now, officials have indicated that they are in no hurry to begin raising interest rates.  They have offered investors word cues of its intent.

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  • All eyes and ears on the U.S. FOMC this week.

    Fair or Unfair, the US FOMC Meetings Trump other Central Banks

    The most important event next week is the FOMC meeting followed by a press conference by Yellen.  In order to maximize its room to maneuver, we expect the FOMC statement will drop the patience that has characterized its forward guidance since last December.

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  • The euro reacts to the bond-buying program and Greece's issues are back.

    Let the Euro Sovereign Bond-Buying Commence, and the Next Act in Greece Enters the Stage

    The euro finished last week three standard deviations below its 20-day moving average.  Even though the returns in the foreign exchange market are not normally distributed, this is a rare event, and reflected the stretched technical condition of the dollar following the stronger than expected US jobs data.  After a slow start in Asia, the euro climbed from a little below $1.0825 to $1.0900, where sellers awaited.  

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