.... Much of the recent confusion has been created by the Fed itself. Two weeks ago, Chairman Bernanke said "The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as inflation. Vice Chairman Kohn followed a day later saying "It is very important to ensure that policy actions anchor inflation expectations...this anchoring is critical." Since Bernanke and Kohn are officially designated as policy spokespersons, many jumped to the conclusion such signaled policy would be tightened imminently, perhaps as soon as the June 24-25 FOMC meeting. The dollar strengthened against the euro, yen and pound while traders in Fed Funds Futures dialed in a 100% certainty of a rate increase at the September meeting....
.... Traders will be examining the statement closely for any differences that may signal future policy adjustments because of how those decisions will effect movement on the dollar. We could see some of the language from Bernanke's June 9th speech added (see above), but that by itself will not be enough to support the dollar bulls. What's crucial is that the FOMC has continued to say they expect inflation "to moderate in coming quarters." If that language is retained in the statement, the market is likely to believe the Fed will remain on hold while an absence of wording to that effect will likely indicate rate increases are back on the table.....
... As for the future, it seems certain that the Fed will not raise in August. Fed Funds Implied probabilities were pricing in a 100% chance for an increase at the September meeting-those odds have now been reduced to 86.3%. Chances for an increase in October have also been reduced-to 95% from 100%.....
Note: Here's what I believe is key-the FOMC has repeatedly said they expect inflation "to moderate in coming quarters" and if that language is retained, I believe the market will take it as a sign that rate increases will not happen no matter how hawkish other statements may appear to be. The reason is because it wouldn't make sense to raise rates if they believe inflation will moderate, especially given all the downside risks to growth. If that phrase is missing, I believe that will put rate increases back on the table ...
Complete article: Click here..
.... Traders will be examining the statement closely for any differences that may signal future policy adjustments because of how those decisions will effect movement on the dollar. We could see some of the language from Bernanke's June 9th speech added (see above), but that by itself will not be enough to support the dollar bulls. What's crucial is that the FOMC has continued to say they expect inflation "to moderate in coming quarters." If that language is retained in the statement, the market is likely to believe the Fed will remain on hold while an absence of wording to that effect will likely indicate rate increases are back on the table.....
... As for the future, it seems certain that the Fed will not raise in August. Fed Funds Implied probabilities were pricing in a 100% chance for an increase at the September meeting-those odds have now been reduced to 86.3%. Chances for an increase in October have also been reduced-to 95% from 100%.....
Note: Here's what I believe is key-the FOMC has repeatedly said they expect inflation "to moderate in coming quarters" and if that language is retained, I believe the market will take it as a sign that rate increases will not happen no matter how hawkish other statements may appear to be. The reason is because it wouldn't make sense to raise rates if they believe inflation will moderate, especially given all the downside risks to growth. If that phrase is missing, I believe that will put rate increases back on the table ...
Complete article: Click here..
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