Economist's Insights

FedSpeakers Awaken Markets from an Afternoon Slumber

Mar 1, 2017

Philadelphia Fed President Harker continued to call for three hikes this year, a view consistent with comments he’s made on multiple occasions this month. Harker has previously noted that he is comfortable with a move in March. San Francisco Fed President Williams also made headlines saying a rate hike will get “serious consideration” when the Committee gathers in March. The phrase is identical to one used last Friday by outgoing Atlanta Fed President Lockhart. Williams added, “We’re very close to achieving our dual mandate goals. Yet monetary policy essentially still has the pedal to the metal. …We need to gradually ease our foot off the gas in order to avoid a ‘too hot’ economy that in the end isn’t sustainable.” Yields were already up on the comments from Harker and Williams but NY Fed President Dudley elicited the biggest market response. Dudley told CNN International that the case for increasing the overnight rate has become “a lot more compelling” and that “the risks to the outlook are now starting to tilt to the upside.” Dudley said “animal spirits have been unleashed a bit” since President Trump was elected and that the data indicate “we’re very much on the trajectory that we…thought we’d be on and we said if we were on that trajectory, we’re going to gradually remove accommodation.” Regardless of whether it was solely the unusually hawkish sounds from the usually dovish Dudley or simply a collective piling on of positivity in a short period of time, markets took heed.