Global Macro

The US Dollar, Treasury markets and global stock indexes all remained within recent ranges as investors eagerly await Fed Chair Janet Yellen’s speech; which some believe could provide clarity on whether US interest rates will rise again this year. Ms Yellen will deliver the keynote address at the global central bank gathering at Jackson Hole, Wyoming at around midnight, Sydney time.

The idea is that she could send a clear signal that the FOMC is gearing up for another rate hike this year, but the likely outcome is that she will maintain her less committed stance that policy transmission trajectory will remain data-dependent and that all policy meetings are “live”.

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Taking into account that two other FED leaders, William Dudley and Stanley Fisher, have already expressed their views that interest rate normalization will continue this year, it seems unreasonable to expect that Ms Yellen will substantially stray from the generally upbeat US economic theme. This idea is underscored by the fact that the topic of her speech, “Designing Resilient Monetary Policy  Frameworks for the Future”, really has nothing to do with current policy decisions.

So does this mean that Ms Yellen’s speech will be a non-event? Probably not.

Although a rate hike in September seems unlikely, there is little upside to be gained by Ms Yellen ruling it out. The FED wants investors to believe that every meeting is actionable, even though there is no historical precedent for a move in November; the month of a national election. According to today’s Fed Fund futures, the market has raised the odds of a move in September to 28% from 26% just after the US payroll data on august 5th.

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