Will she, or won’t she? That is the question everyone wants answered regarding whether Yellen will hike rates in two weeks time. To be sure, historical precedent is not on the side of the hawks: as Bloomberg’s Daniel Kruger reminds us, “Last September in ambiguous circumstances Yellen opted to stay on hold. Three years ago in September Ben Bernanke chose not to taper QE3 bond purchases.”
Still, while a September hike now looks implausible – in retrospect the perfect tell was Goldman’s conviction that the Fed will hike last Friday – Kruger also notes that over the next two weeks, markets enter one of those rare periods when traders can actually trade without constant jawboning from various important Fed members, or as he puts it, “the next two weeks present an opportunity to take a stand on interest rates without meaningful hand-holding from monetary officials. Between now and Sept. 21, when the central bank announces its decision, the calendar includes only regional Fed presidents. Members of Janet Yellen’s inner circle are absent. Data’s all that’s left.”
However, in a world of 17-year-old hedge fund managers and Pavlov dog investors, does anyone even remember how to trade based only on “data”? Maybe handholding by the Fed is precisely what we all need in perpetuity?
Full note from Bloomberg’s Daniel Kruger
Without the Fed Holding Your Hand, Little Is Left
For those who think markets have become too dependent on the Fed, the next two weeks present an opportunity to take a stand on interest rates without meaningful hand-holding from monetary officials. Between now and Sept. 21, when the central bank announces its decision, the calendar includes only regional Fed presidents. Members of Janet Yellen’s inner circle are absent. Data’s all that’s left.
Most of the upcoming speakers have biases predisposed in favor of Fed action. We’ve heard their arguments. Yellen, William Dudley and Stanley Fisher did what they could at Jackson Hole to convince investors that officials may raise rates this month. So with no major data left after weaker nonfarm payrolls and ISM numbers clouding prospects of a rate hike, there’s little in the way that could shift market expectations significantly.
The futures market trimmed its view on the probability of a September increase to 24% from 34% after the August reading of the ISM non-manufacturing index was the weakest since 2010. Reports on retail sales and consumer prices have the potential to shift expectations back and forth.
The stand-out Fed speakers before the meeting include John Williams of the San Francisco Fed, who speaks this morning in Asia hours. He’s argued there’s a need for higher rates sooner rather than later. Eric Rosengren of the Boston branch comments on Sept. 9. He views growth as strong enough to warrant an increase.
Dogma isn’t going to convince investors when data doesn’t cooperate. Last September in ambiguous circumstances Yellen opted to stay on hold. Three years ago in September Ben Bernanke chose not to taper QE3 bond purchases.
Without the Fed to guide you, look to the numbers. That’s what will guide the Fed.
via http://ift.tt/2c5gVf2 Tyler Durden