Earlier today, NY Fed president Bill Dudley sparked a hawkish storm in the markets, when in a bizarre statement he doubled down on the Yellen's "hawkish hike" rhetoric, and made it seem that easing is now perceived by the Fed as a bad thing:
- FED'S DUDLEY: HALTING TIGHTENING CYCLE NOW WOULD IMPERIL ECONOMY
Then moments ago, today's second Fed speaker of the day, Chicago Fed's dovish, FOMC voter Charles Evans delivered a Dr. Jekyll and Mr. Hyde statement, where first, in his prepared remarks and during the subsequent Q&A in New York he sounded rather hawkish, while speaking to reporters after the event he flipped at emerged as his usual old dovish self.
First, here are the highlights from the dovish Evans:
- “I think where we are with the funds rate right now is kind of in line with my outlook.”
- "US fundamentals are good, no reason this won't continue"
- Evans sees a "high threshold to change the Fed's balance sheet unwind plan"
- Evans said there are only "small differences" in whether the FOMC hiked rates 2, 3, or 4 times in 2017.
- Evans says he didn’t dissent last week because “we’re at a point where the real economy is really doing quite well”
- Evans agreed with Yellen and others that the reductions in the balance sheet should gradual and like "watching paint dry".
- “I can’t just sort of say, it’s without risk to continue with very accommodative low interest rates"
- “Beginning to adjust the balance sheet is one of the easier, more natural things to do, soon, sometime this year"
He also said something which really doesn't make any sense, to wit: “I want to assure you that if we know things are going wrong we will act.” The statement is clearly meaningless because on countless occasions the Fed has said it has no way of seeing asset bubbles in advance, and since an asset bubble is the biggest risk facing global markets, one wonders just how the Fed could know that "things are going wrong."
And then as he was leaving, the dovish Evans we all know so well, made a surprise appearance:
- “We could wait until December” and assess the data and still be able to get the three hikes in which are implied by the median dot in the latest quarterly Fed forecast
- “I think it’s going to be important to see several months of markedly better inflation data.”
- “I think that it’s about the policy path from here that is the risky part. Now, it could be that we’ve already gone too far. I don’t think that’s the case”
- “I think if we were to race to a higher funds rate too quickly without seeing improvements in inflation, that could be quite a concern. And it’s that part that I think where we need to stop and kind of go, you know -- I just think the message out of the conservative central banking story was, we need to get inflation to 2 percent”: Evans
His non-committal conclusion was that “we’re at a point where we’d be well- served to meaningfully monitor the data.”
During his speech, the dollar initially strengthened, then weakened, but since the end of his speech it has resumed its autopilot move higher as Dudley's comments clearly take presedence, bizarre as they may have been.