If there is one thing that I am fairly sure that monetary policymakers hate, it is the idea that the outcomes of their meetings are preordained. November appears to be just such a meeting. To be sure, Fed hawks want to believe the meeting is "live." The sizable group that dissented - or would have dissented if they were voting members - likely sees the case for a rate hike in November as even more pressing than in September. Remember, it is all about preemptive policy action from that contingent. If you thought a delay was bad in September, it must be worse in November. But the doves - including a powerful group of permanent voting members - will likely have none of it. From their point of view, the case for a rate hike is no more pressing in November than September. Indeed, according to the dot-plot, at least three would be happy taking a pass in December as well. And, although they would be loathed to admit it, within the context of a risk management framework the timing of the election argues against a hike as well. As I see it, the best the hawks can hope for is a strong statement about December. The data would have to very quickly turn very strong to give the hawks an upper hand in November.
Read Interview with OECD's William White on the Negative Side Effects of Ultra-Easy Money
I did get a chuckle out of this last week:
Jeffrey Lacker for the extreme view on that point) in November.My takeaways on Fed communications over the last week are thus:
- If you are only going to hike once a year, it is difficult to see why that hike would come at a meeting without a press conference. Clearly, it is not as if the timing of that one hike is really all that critical. You just have to learn to live with the reality that it will be hard to describe all eight meetings a year as "live" when you hike in only one of them. Live with the fact that at least half will end up effectively as "dead." And guess what? You determined which were "dead" with the decision to only have a press conference at every other meeting.
- Don't try to talk up a rate hike with the only purpose of keeping the drama surrounding the meeting alive. That is not helping market participants understand the factors driving policy.
- Don't try to talk up the market odds of a meeting just to attempt to gain a tactical advantage at that meeting. That seems to me to be what Fed hawks have been doing this year. The doves just aren't buying the preemptive strike argument. And they won't if market odds for a meeting are 50% rather than 15%. Wait until December.
- If US politics are off limits, then foreign politics need to be off limits. It is very hard to explain why US politics don't matter for policy when foreign politics do matter.
Bottom Line: I am hard pressed to see the way forward to a November rate hike. Seems that delay will still dominate over preemptive strikes in November.
