fra Zerohedge
Just in case there was some confusion how to read today’s blistering jobs data, here comes NY Fed’s head and former Goldmanite with the explanation:
- DUDLEY SAYS FED STILL LIKELY TO START RAISING RATES THIS YEAR
Some of his other comments via Bloomberg (his full speech can be found here)
- “The appropriate stance of monetary policy will be influenced by how financial market conditions respond to the Federal Reserve’s actions,” Dudley said in text of speech in Minneapolis
- If conditions tighten sharply, Fed is likely to proceed more slowly; officials would move more quickly under opposite scenario
- “We will adjust the policy stance to support the financial market conditions that we deem are most consistent with our employment and inflation objectives”
- Level of real short-term rates consistent with neutral policy seems “considerably lower” than in past, likely to remain lower than normal in future
- Large balance sheet shouldn’t hurt Fed’s ability to lift fed funds rate, yet liftoff “may not go so smoothly in terms of the impact on financial asset prices”
- Timing of any FOMC decision will still be based on incoming data
- Growth should pick up “somewhat” for rest of yr; uncertainty remains on whether it will lead to further labor mkt improvement
- Some forces restraining growth are likely to fade
- There’s “plenty of room” for more gains in residential investment
- Consumer spending should grow if households become more confident about their finances
- 2Q rebound appears to be “relatively muted”
- 1Q contraction came from “mix of factors”; “seasonal adjustment issues” probably played some role
- Today’s payroll data for May shows continued progress toward full employment; “there is still some ways to go”
- Unclear why productivity growth has slowed; its future path will be important for employment outlook
- Uncertain whether there will be more gains in labor mkt this yr
- More confident medium-term inflation will return to 2%; resource utilization should increase; impacts of lower energy prices, firmer USD have stabilized or partially reversed
- Downside risk is that wage growth remains subdued; trade sector looks likely to be drag for rest of yr; USD is still more than 10% higher than yr ago
- Would support start of policy normalization this yr if labor mkt continues to improve, inflation expectations stay well- anchored
- Sees “smooth” liftoff in terms of Fed’s ability to push fed funds higher; financial mkt reaction less clear
- Fed could alter level of IOER, ON/RRP and/or spread between two as needed to move fed funds rate into desired range
- Likely to be “some turbulence” in mkts at onset of normalization
- Any confidence band around FOMC’s dots would probably be “very wide” given uncertainty in outlook, “loose” link between fed funds rate and mkt conditions
As for the market:
- Likely to be “some turbulence” in markets at onset of normalization
Aka, the same warnings as Mario Draghi gave on Wednesday sending Bunds into a tailspin.
His comments initially pushed futures to the lowest since this morning’s furious ramp to green..
